Free Motion to Supplement - District Court of Arizona - Arizona

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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 Motion to Supplement Plaintiffs Opposition to Defendants November 16, 2007 Motion for Reconsideration and Plaintiffs Motion to Supplement Motion to Reconsider Order Re: Discovery Dispute

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Plaintiffs hereby move to supplement their opposition to Defendants November 16, 2007 Motion for Reconsideration, (Doc. 361), and Plaintiffs Motion to Reconsider Order Re: Discovery Dispute. (Doc. 357.) On Friday, December 28, 2007, the Department of the Treasury responded to a subpoena served by Plaintiffs by providing, inter alia, the attached documents,1 which

For the convenience of the Court, some of the documents received from the Treasury are attached hereto as Exhibit A and presented in chronological order and are Bates numbered. Attached hereto as Exhibit B is Plaintiffs list of the job titles of the persons
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demonstrate, contrary to Defendants claims, that the Solomon letter was not the product of an independent and reasonable consideration but rather that both Treasury employees and Honeywell directly participated in drafting the so-called inquiry from Congressman McCrery and that both the inquiry and the Solomon response were contrived for the purpose of circumventing 26 U.S.C. § 7805(b) and the 2005 regulations. The documents demonstrate that Treasury employees, with Honeywell s coaching and participation, had a hand in

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drafting the McCrery inquiry to themselves2 and that certain Treasury employees had prepared a response to the contrived inquiry before Treasury even received it. (Exh. A, at 905-TREAS00008, 905-TREAS00012.) Given Honeywell s extraordinary access and onesided ex-parte communications and the failure of consideration of any alternative views, the letter should be disregarded. As the documents make clear, the Solomon letter lacks any semblance of a fair, impartial and reasoned consideration of the subject matter by the agency and, to the extent it could be applicable here, is an unlawful attempt to evade the prohibitions against retroactivity of Treasury regulations contained in 26 U.S.C. § 7805(b). That statute provides: (1) In general.--Except as otherwise provided in this subsection, no temporary, proposed, or final regulation relating to the internal revenue laws shall apply to any taxable period ending before the earliest of the following dates: (A) The date on which such regulation is filed with the Federal Register. (B) In the case of any final regulation, the date on which any proposed or temporary regulation to which such final regulation relates was filed with the Federal Register. (C) The date on which any notice substantially describing the expected contents of any temporary, proposed, or final regulation is issued to the public.

referenced in the emails, which Plaintiffs have compiled through internet searches endeavoring to identify the senders and recipients of the documents produced. The documents also disclose that the inquiry was initially going to be only from Congressman McCrery, (Exh. A, at 905-TREAS00012), the recipient of the Honeywell and lobbyist firm Akin Gump PACs sizeable campaign contributions. (See Doc. 357, pp. 6-8.)
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From the documents produced in response to Plaintiffs subpoena, it is apparent that Honeywell was front and center in the attempt by the ERISA Industry Committee to have the Treasury Department make the 2005 regulations on Section 411(d)(6) retroactive or make direct reference to the 1977 regulations.3 Although Treasury advised Honeywell that this was a nonstarter, (Exh. A, at 957-TREAS00035), certain Treasury employees actively assisted Honeywell in its efforts to do indirectly what Treasury was prohibited from doing

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directly. Treasury employees assisted Honeywell in drafting proposed legislation (which was not passed) to circumvent their 2005 regulation prospective effective date problems,4 and upon failure of that effort, collaborated with Honeywell and Congressional staffers in the manufacture of the instant Solomon letter along with the inquiry to which it responds. The emails between Honeywell Lobbyist Paul Zurawski and certain Treasury employees show that Honeywell asked for and certain Treasury employees gave advice to Honeywell regarding Honeywell s Congressional efforts to add a provision to the Pension Protection Act making consistent the various regs regarding the simultaneous plan amendment rule. (Exh. A, at 905-TREAS00002.) This participation alone shows that

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Treasury believed the regulations were inconsistent and needed legislation to accomplish Honeywell s goals. These Treasury employees assisted Honeywell in their unsuccessful effort to lobby for the inclusion of specific language in the Pension Protection Act, notwithstanding Section 7805(b) and Treasury employee William Bortz s opinion that it is poor legislative form to try to influence a pending case and that offsets involving

The ERISA Industry Committee comments that were attached to Doc.354 as Exhibit B advocated, for example, that Treasury clarify that the 1977 regulations somehow applied to early retirement benefits, a position the Treasury Department directly contradicted in the preamble and separate treatment of early retirement benefits in the 2005 regulations.
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(Exh. A, at 905-TREAS00002.)

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hypothetical earnings are arbitrary and should not be legislatively blessed. (See email dated June 16, 2006 from William Bortz to Harlan Weller Exh. A, at 905-TREAS0001.) Honeywell asked these Treasury employees to comment on its proposed draft legislation. Treasury associate tax attorney William Bortz prepared a draft revision to Honeywell s proposed legislation and Mr. Bortz indicated that he would communicate his proposed revisions to Honeywell s lobbyist Paul Zurawski orally. (Exh. A, at 905-TREAS00002.)

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On July 28, 2006 and August 3, 2006, the Pension Protection Act of 2006 was passed by the House of Representatives and the Senate respectively. Contrary to Honeywell s efforts, the legislation did not incorporate Honeywell s proposed language about simultaneous plan amendments. (See email dated July 31, 2006 from Treasury actuary Harlan Weller to various Treasury employees, Exh. A, at 905-TREAS00004.) After failing in its regulatory and legislative efforts to overturn the rulings in this case, the documents from Treasury disclose that in December 2006, Honeywell continued its lobbying efforts with Treasury and Congress. In December 2006, Honeywell asked Treasury employee W. Thomas Reeder if the lobbyist together with Honeywell s Deputy GC, could

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come discuss with Treasury employees our simultaneous plan amendment issue.

(See

emails dated December 11, 2006 and calendar entry dated December 13, 2006, Exh. A at 905-TREAS00005-7.) The inquiry letter from James McCrery to which the Solomon letter purports to respond, appears to have been a device hatched by Honeywell and certain Treasury employees as an outgrowth of an apparent meeting with certain Treasury employees on December 13, 2006. The strategy was apparently aided by staffers for the Committee on Ways Means led by the heavily lobbied (and recipient of the Honeywell PAC s generous

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contributions to) Congressmen McCrery. (See Doc. 357, pp. 6-8.) (See emails dated

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February 6, 2007 from Elizabeth Coffin, the Tax Counsel on the Committee on Ways and Means (Republican Staff) to Thomas Reeder referencing an upcoming meeting on inter alia 1. Honeywell simultaneous plan amendment issue *Treasury guidance, Exh. A, at 905TREAS00009-11.) Following a referenced meeting between certain Treasury employees and Ways and Means Committee staffers, apparently held on February 8, 2007, Ms. Coffin provided to Treasury employee Mark Warren a draft letter regarding Honeywell s

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simultaneous plan amendment issue. Regarding the draft inquiry, Treasury employee Mr. Reeder advised Mr. Warren: Mark, I got a call from Libby Coffin who indicated she gave you a draft letter regarding Honeywell s simultaneous plan amendment issue. I think Bill Bortz will be very interested in seeing it and will have good views on how to tweak the letter best (with my and Harlan s input). Bill and I spoke about this when we met with her last week. She indicated it wasn t urgent, which I think means she s not expecting a response today. But we will try to give you our views on Tuesday. (See email dated February 16, 2007, Exh. A, at 957-TREAS00008.) Not only did Treasury employees participate in drafting the McCrery letter to themselves, they had a complete draft of a response to the inquiry before Treasury even received it and before the Secretary of the Treasury ever asked for any input. (See emails dated July 10, 2007, Exh. A, at 905TREAS00013-19.) All of this appears to have been accomplished without the input or participation of Assistant Secretary Eric Solomon. Indeed, the original draft of the Treasury response was to come from Kevin I. Fromer, Assistant Secretary for Legislative Affairs. (Exh. A, at 905-TREAS00019.) As if the active participation of the Treasury employees in fashioning contrived inquiries to themselves were not enough, when Treasury actually

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received the letter, it appears that they once again invited Honeywell in to participate in tweaking the already predetermined response to the McCrery letter. (See email dated dated July 10 and July 12, 2007, Exh. A, at 905-TREAS00020, in which Honeywell s lobbyist

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assumes that he will have a meeting and the question is just with whom: may we come in to see you and the relevant staff or do you want me to just see Harlan and/or Bill? and in which Mr. Reeder comments I would suppose a meeting wouldn t be very useful but maybe we need to have it anyway. (emphasis supplied).) Additional discovery and briefing on this issue is also appropriate to address the various drafts and permutations of the Solomon letter and comments about the same which reveal the letter s limited scope, intent and view that Michael v. Riverside Cement was in fact controlling at the time the 2005 regulations were adopted. For instance, the first draft of the letter stated that the interpretive conclusion reached in the 2005 regulations must by logic be applicable equally to periods before that effective date. (Exh. A, at 905-TREAS00019 (emphasis supplied).) Tellingly, the final Solomon letter removes the mandatory must and merely states that the conclusion is by logic equally applicable... (See Exh. A, at 905TREAS00024-25.) The documents also make clear that the Solomon letter was only intended to address concerns about plan qualification issues under the Internal Revenue Code and was not intended to impact participant rights under Title I of ERISA, as Plaintiffs argued

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in response to Defendants November 16, 2007 motion for reconsideration. The original draft letter said nothing about the intended effect of the letter. (Exh. A at 905-

TREAS00019.) The draft letter was apparently changed because the Legislative Affairs department has a problem with the last sentence and is asking for more and therefore after soliciting IRS employees views, the letter was changed to also include the language: Thus, the IRS would not challenge and amendment that would otherwise involve a prohibited cutback if it has the same applicable effective date as another amendment and the net effect of the two amendments does not involve a prohibited cutback, even if the issue arose prior to the effective date of the final regulation. (Email dated July 18, 2007, Exh. A, at 905-TREAS00034.) See also email dated July 24,

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2007 from Alan Tawshunsky, Office of the Assoc. Chief Counsel, Tax Exempt & Gov't entities division of the Internal Revenue Service, noting I would virtually never challenge a taxpayer taking a position that is based on an interpretation of the statute that we adopt in subsequent guidance.... (Id. (emphasis supplied).) Marjorie Hoffman, special counsel to the assistant chief counsel for Employee Benefits, noted that the letter reflects the IRS view that the Michael s decision governs as of the 2005 regulations. (Email from Marjorie Hoffman

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dated July 24, 2007, Exh. A, at 905-TREAS00034.) Nancy Marks, Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), confirmed the limited scope of the last sentence: I think the sentence is correct, it certainly comports with that I d expect and what I anticipate we d advise if we saw the service making a challenge of the type described. I defer to Jimmy on whether EP feels it can comfortably assert that it won t make the challenge procedurally but I d note that if it happened it would be dropped at some point before litigation, which may be virtually the same thing. (Exh. A, at 905-TREAS00036.) These documents also make clear that the last sentence of the Solomon letter was limited to enforcement actions the IRS might take under Title II of ERISA regarding plan qualification issues under the Internal Revenue Code and not to any

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question of employee rights under Title I of ERISA under which the IRS has no enforcement authority. Plaintiffs respectfully submit that the attached documents obtained from Treasury after the submission of Plaintiffs opposition to Defendants motion for reconsideration and Plaintiffs motion to reconsider the Court s prior ruling on the discovery dispute are relevant to these motions and that Plaintiffs motions to supplement should be granted. Should the Court wish to receive additional briefing on the impact of this evidence on Plaintiffs opposition to Defendants November 16, 2007 motion for reconsideration, and on Plaintiffs

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Motion to Reconsider Order Re: Discovery Dispute, Plaintiffs request an opportunity to submit a supplemental brief or to file revised briefs in substitution for the briefs that were submitted. Respectfully submitted this 3rd day of January, 2007.

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 (602) 240-6900 Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE I hereby certify that on January 3, 2007, 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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