Free Motion for Reconsideration - District Court of Arizona - Arizona

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 Telephone: (602) 640-9000 [email protected] [email protected] Michael L. Banks, Pro Hac Vice Azeez Hayne, Pro Hac Vice MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Telephone: (215) 963-5000 [email protected] [email protected] Howard Shapiro, Pro Hac Vice PROSKAUER ROSE LLP 909 Poydras Street, Suite 1100 New Orleans, LA 70112 Telephone: (504) 310-4088 [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 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., PHV (pending) Eleanor R. Barrett, PHV (pending) KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005 Telephone: (202) 879-5000 [email protected] [email protected]

MOTION FOR RECONSIDERATION (Oral argument requested)

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INTRODUCTION On September 18, 2007, the U.S. Treasury Department made public a letter setting forth the agency's considered position on the meaning of a 1977 Regulation interpreting ERISA's so-called "anti-cutback" provision, 29 U.S.C. § 1054(g)(1). See Letter from Eric Solomon, Assistant Secretary (Tax Policy), Dep't of the Treasury, to Hon. Jim McCrery, Ranking Member, House Comm. on Ways & Means, (Aug. 7, 2007) ("Treasury Letter") (attached at Tab A), discussed in 180 Daily Tax Report (BNA) G-7 (Sept. 18, 2007) (attached at Tab B). As the Treasury Letter explains, the Treasury Department interprets the 1977 Regulation to mean that an amendment to a retirement plan must be considered as a whole to determine whether it violates the statutory anticutback provision, so that a cutback in any discrete component of a plan does not violate the statute if the net effect of the amendment is to increase benefits. The 1977

Regulation is thus, for all intents and purposes, the same as a 2005 Regulation addressing this same point of law. The Treasury Letter warrants reconsideration of this Court's non-final decision granting plaintiffs' motion for summary judgment on their anti-cutback claim and denying defendants' corresponding motion to dismiss that claim. Indeed, the Court openly acknowledged in that decision that defendants had the better of the legal arguments, but insisted that its hands were tied by the Ninth Circuit's ruling in Michael v. Riverside Cement Co. Pension Plan, 266 F.3d 1023 (9th Cir. 2001). See Allen v. Honeywell Ret. Earnings Plan, 382 F. Supp. 2d 1139, 1153 (D. Ariz. 2005) ("Defendants' approach ... 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."); id. at 1158 ("This Court would overrule ... Michael if it had the power, and urges the Ninth Circuit to do so."). This Court subsequently held that the Michael decision cannot be squared with a 2005 Treasury Department Regulation interpreting the anti-cutback provision. In particular, this Court characterized the 2005 Regulation as "not only reasonable, but correct," and explained that it trumped the Ninth Circuit's interpretation
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of the statute under basic principles of administrative law as described in National Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005). Nonetheless, the Court held that the 2005 Regulation does not help defendants here because, by its terms, it does not apply retroactively to plan amendments that took effect before 2005. Neither the Ninth Circuit's decision in Michael nor this Court's prior decisions in this case, however, addressed the 1977 Regulation. The Treasury Letter, in contrast, does address that Regulation and explains that it has precisely the same import as the 2005 Regulation. That point is dispositive here, because the 1977 Regulation, unlike the 2005 Regulation, was indisputably in effect at the time of the plan amendment at issue here. And the 1977 Regulation, like the 2005 Regulation, trumps the Ninth Circuit's interpretation of the statute in Michael under basic principles of administrative law as described in Brand X. Indeed, the Michael Court was apparently unaware of the 1977 Regulation, which is neither mentioned in the decision nor cited in any of the briefs in that case. The Treasury Letter thus fits the final missing piece into the puzzle. This Court has already recognized that the 2005 Regulation, if applicable here, would trump Michael and hence warrant reconsideration. The Treasury Letter explains that the 1977 Regulation, which indisputably applies to the plan amendment at issue here but was not considered by the Ninth Circuit in Michael, leads to the same result. Reconsideration is thus warranted for the limited purpose of addressing the Treasury Letter, which sets forth the Treasury Department's considered interpretation of its own 1977 Regulation, and is thus entitled to judicial deference. Needless to say, this Court should not enter a final judgment against defendants on plaintiffs' anti-cutback claim without considering the Treasury Letter, which makes clear that the amendment at issue here did not violate ERISA's anti-cutback provision because, taken as a whole, that amendment increased rather than decreased plaintiffs' benefits.

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BACKGROUND A. ERISA and the 1977 Regulation

ERISA's anti-cutback provision states, in relevant part, that "[t]he accrued benefit of a participant under a plan may not be decreased by an amendment of the plan." 29 U.S.C. § 1054(g)(1). The statute, in turn, defines "accrued benefit" as the "annual benefit commencing at normal retirement age." 29 U.S.C. § 1002(23)(A). Because the statutory definition of "accrued benefit" is, as the Supreme Court has recognized, "rather circular[]," and thus "not as helpful as it might be" in explaining the scope of the anti-cutback provision, Central Laborers' Pension Fund v. Heinz, 541 U.S. 739, 744 (2004), the Treasury Department (which has been delegated authority to administer the anti-cutback provision, see Treas. Dec. Int. Rev. 7501, available at 1977 WL 202014 (Aug. 23, 1977) (citing 26 U.S.C. §§ 411, 7805); Reorganization Plan No. 4 of 1978, § 101, 43 Fed. Reg. 47,713, 92 Stat. 3790 (1978), as amended Pub. L. 99-514, § 2, 100 Stat. 2095 (1986)), promulgated relevant regulations in 1977, just three years after the statute's enactment. In pertinent part, these regulations "identify more

specifically the types of amendments which are proscribed" by the anti-cutback provision. 42 Fed. Reg. 42,318, 42,319 (Aug. 23, 1977) (attached at Tab C). The 1977 Regulation clearly explains that the relevant issue for anti-cutback purposes is the net effect of a plan amendment, not the effect of each discrete component of an amendment viewed in isolation: For purposes of determining whether or not any participant's accrued benefit is decreased, all the provisions of a plan affecting directly or indirectly the computation of accrued benefits which are amended with the same adoption and effective dates shall be treated as one plan amendment. 26 C.F.R. § 1.411(d)-3(b) (1977) (emphasis added; Tab D). Thus, if the net effect of a plan amendment is to increase participants' accrued benefits, no impermissible cutback has occurred as a matter of law. See id.

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B.

The Garrett Plan Merger and this Litigation

This case arises from the merger of the retirement plan of Garrett Corporation, one of Honeywell's predecessor companies, into the retirement plan of The Signal Companies, Inc., another of Honeywell's predecessor companies, effective January 1, 1984. This merger was carried out by amending both the Garrett plan and the Signal plan. Plaintiffs, participants in the Garrett plan, filed this lawsuit in 2004, alleging that the merger of the Garrett Plan into the Signal plan violated, inter alia, ERISA's anticutback provision. Defendants moved to dismiss the anti-cutback claim on the ground that the merger increased plaintiffs' overall benefits. Plaintiffs, for their part, moved for summary judgment on their anti-cutback claim on the ground that the merger impermissibly cut back discrete components of their benefits, regardless of whether their overall benefits increased. In the briefing on these motions, defendants relied on the 1977 Regulation to support their interpretation of the statute. See Defs.' Br. in Opp. to Pls.' Mot. for S.J. (8/5/04) (Docket #31) 7-8 ("[R]egulations promulgated by the Secretary of the Treasury confirm that [§ 1054(g)] protects the amount of a participant's annual benefit or account balance, not the formula under which the benefits are computed.") (quoting and citing 26 C.F.R. § 1.411(d)-3(b) (1977); emphasis in original). Defendants also noted that

"recently issued Proposed Regulations further confirm that [§ 1054(g)(1)] protects the total accrued benefit, as opposed to discrete components of the benefit formula." Id. at 8 (emphasis added). This Court, however, granted plaintiffs' motion for summary judgment on their anti-cutback claim and denied defendants' corresponding motion to dismiss that claim. See Allen, 382 F. Supp. 2d at 1149-59. To say that the Court expressed serious

reservations about that result would be an understatement. The Court declared that the result was dictated by the Ninth Circuit's Michael decision, "the law in this Circuit as it now exists." Id. at 1153. The Court candidly disclosed its view that Michael was
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wrongly decided and that, if it were addressing plaintiffs' anti-cutback claim "as a matter of first impression, it would adopt the Defendants' construction of the anti-cutback rule." Id. at 1150; see also id. at 1150-52 (listing five reasons why defendants' interpretation of ERISA's anti-cutback provision is correct as a matter of law). The Court, however, did not address defendants' argument that the 1977 Regulation supported their interpretation of the statute. C. The 2005 Treasury Regulation and Defendants' Motion for Reconsideration

Defendants moved for reconsideration, and--while that motion was pending--the Treasury Department finalized its proposed Regulation confirming defendants' interpretation of the statute. The 2005 Regulation provides in pertinent part: For purposes of determining whether any participant's accrued benefit is decreased, all of the amendments to the provisions of a plan affecting, directly or indirectly, the computation of accrued benefits are taken into account. 26 C.F.R. § 1.411(d)-3(a)(2)(i) (2005) (emphasis added; attached at Tab E). The 2005 Regulation goes on to state that: In determining whether a reduction in a participant's accrued benefit has occurred, all plan amendments with the same applicable amendment date are treated as one amendment. Thus, if two amendments have the same applicable amendment date and one amendment, standing alone, increases participants' accrued benefits and the other amendment, standing alone, decreases participants' accrued benefits, the amendments are treated as one amendment and will only violate section [1054(g)] if, for any participant, the net effect is to decrease participants' accrued benefit as of that applicable amendment date. 26 C.F.R. § 1.411(d)-3(a)(2)(ii) (2005) (emphasis added; Tab E). The Court, not surprisingly, focused on the new Regulation in deciding the motion for reconsideration. In particular, the Court declared that the interpretation of ERISA's anti-cutback provision set forth in the 2005 Regulation was "not only reasonable, but also correct." Order (11/18/05) (Docket #138), at 8. The Court further recognized that the Regulation trumps the Ninth Circuit's Michael decision under the Supreme Court's recent Brand X decision. See id.

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Notwithstanding that conclusion, the Court held that the 2005 Regulation did not apply here because, by its terms, it did not take effect until August 12, 2005, well after the amendment at issue in this case. See id. at 9-12. Accordingly, this Court denied the motion for reconsideration. See id. at 14. The Court did not, however, address

defendants' argument that the 2005 Regulation merely confirmed the Treasury Department's longstanding view set forth in the 1977 Regulation. See Defs.' Supp. Br. (9/6/05) (Docket #95), at 12 n.8 (noting that, regardless of retroactive effect of 2005 Regulation, "the longstanding `simultaneous amendment' rule still controls this Section [1054(g)(1)] case") (emphasis added); see also Defs.' Reply Br. (10/25/05) (Docket #116), at 7 ("[T]he net effect test [in the 2005 Regulation] is merely a clarification of the long-standing simultaneous amendment rule.") (emphasis added); id. at 8 ("[T]he net effect test is simply a clarification of the 1977 regulations' simultaneous amendment rule.") (emphasis added); see also Tr. (10/26/05), at 6 ("[W]hat [Treasury Department officials] are saying [in the 2005 Regulation] is Michael was inconsistent with their prior regulations and now we're making that very clear.") (emphasis added; attached at Tab F). D. The Treasury Department's Guidance on its 1977 Regulation

Recently, the Treasury Department again weighed in on this important legal question. On July 9, 2007, a bipartisan group consisting of both the Chairman and Ranking Member 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 Paulson requesting guidance on the interpretation of ERISA's anti-cutback provisions set forth in the 1977 Regulation. As these Members of Congress explained, "[t]he simultaneous amendment rule as set forth in the 1977 regulations and reiterated in the 2005 regulations recognizes the delicate balance between the need for certain flexibility for employers to voluntarily offer these benefits while protecting the participant's accrued benefits." 7/9/07 Letter from Reps. Rangel & McCrery and Sens. Baucus & Grassley to Secretary Paulson (attached at Tab G).
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The Treasury Letter, which was separately addressed and sent to each of the four signatories of the July 9 Letter, is the Treasury Department's response to that inquiry. The Treasury Letter offers three significant insights. First, the Treasury Letter explains that "the 1977 regulations would apply to amendments adopted and effective prior to the effective date of the 2005 final regulations." Treasury Letter (Tab A). Second, the Treasury Letter explains that the 1977 Regulation is "virtually identical" to the 2005 Regulation. Id. And third, the Treasury Letter explains that simultaneous amendments adopted before the 2005 Regulation's effective date that have a net effect of increasing benefits do not violate ERISA's anti-cutback rule, and that the IRS thus "would not challenge" such amendments under the statute. Id. ARGUMENT Reconsideration is warranted here for the simple reason that the Treasury Department has now expressed its considered and controlling interpretation of a regulation that disposes of plaintiffs' anti-cutback claims. Accordingly, defendants now seek reconsideration limited to that narrow but critical issue. I. This Court Has Plenary Authority To Reconsider Its Decision. As a threshold matter, this Court retains plenary authority to reconsider its decision granting plaintiffs' motion for summary judgment on their anti-cutback claim and denying defendants' corresponding motion to dismiss that claim. Because that decision "adjudicate[d] fewer than all the claims or the rights and liabilities of fewer than all the parties," it is non-final, and hence "subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties." Fed. R. Civ. P. 54(b). Under settled law, a court always retains inherent discretion to entertain a motion for reconsideration prior to the entry of final judgment. See, e.g., Balla v. Idaho State Bd. of Corr., 869 F.2d 461, 465 (9th Cir. 1989). Nor does the lawof-the-case doctrine pose any barrier to reconsideration; that doctrine "simply does not impinge upon a district court's power to reconsider its own interlocutory order provided

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that the district court has not been divested of jurisdiction over the order." City of Los Angeles, Harbor Div. v. Santa Monica BayKeeper, 254 F.3d 882, 888 (9th Cir. 2001). To be sure, courts exercise their authority to reconsider sparingly. At some point, district courts need to say that they have decided an issue and leave it to the court of appeals to determine if they have decided it correctly. See, e.g., Castaneda v. Fickett, No. 04-1143, 2006 WL 410880, at *1 (D. Ariz. Feb. 21, 2006) (Silver, J.). But a court cannot say that where, as here, there has been a "controlling or significant change in the law ... since the submission of the issue to the Court." Saini v. INS, 64 F. Supp. 2d 923, 925 (D. Ariz. 1999) (Silver, J.); see also Tomkins v. Schmid Sys., Inc., No. Civ. 03-335, 2006 WL 753155, at *2 (D. Ariz. Mar. 22, 2006). reconsideration is necessary and appropriate. II. The 1977 Regulation, Not Michael, Governs This Case. This Court has already recognized that the 2005 Regulation, if applicable to the plan amendment at issue here, would require judgment in defendants' favor notwithstanding Michael. See 11/18/05 Order, at 8. In particular, the Court recognized that the 2005 Regulation specifically provides that the relevant issue for purposes of ERISA's anti-cutback rule is the net effect of a plan amendment, not the effect of particular components of such an amendment viewed in isolation. See id. at 7 (citing 26 C.F.R. § 1.411(d)-3 (2005)). The Court also recognized that this interpretation of the statute "is not only reasonable, but also correct." See id. at 8. And the Court recognized that, under the Supreme Court's decision in Brand X, the Treasury Department's reasonable interpretation binds the courts, even if they previously had adopted a different interpretation. See id. (citing Brand X, 545 U.S. at 985; AARP v. EEOC, 390 F. Supp. 2d 437 (E.D. Pa. 2005)). Thus, the Court concluded that it would be bound to follow the 2005 Regulation, rather than Michael, if the 2005 Regulation had been in effect at the time of the amendment at issue here. See id. at 8. The key point here is that the Court's reasoning with respect to the 2005 Regulation applies with equal force to the 1977 Regulation, which was in effect at the
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time of the amendment at issue here, and hence controls this case. Indeed, the pertinent provisions of the 1977 Regulation and the 2005 Regulation are virtually identical. The 1977 Regulation provides, in pertinent part: For purposes of determining whether or not any participant's accrued benefit is decreased, all the provisions of a plan affecting directly or indirectly the computation of accrued benefits which are amended with the same adoption and effective dates shall be treated as one plan amendment. 26 C.F.R. § 1.411(d)-3(b) (1977) (Tab D). And the 2005 Regulation provides, in pertinent part: For purposes of determining whether any participant's accrued benefit is decreased, all of the amendments to the provisions of a plan affecting, directly or indirectly, the computation of accrued benefits are taken into account. 26 C.F.R. § 1.411(d)-3(b) (2005) (Tab E). As can be readily perceived, the few differences between the two regulations are primarily grammatical, and do not involve matters of substance. Here is a redlined version of the 1977 Regulation showing the changes made in 2005, with the omitted portions in strikeout characters and the added portions in bold characters. For purposes of determining whether or not any participant's accrued benefit is decreased, all of the amendments to the provisions of a plan affecting, directly or indirectly, the computation of accrued benefits are taken into account which are amended with the same adoption and effective dates shall be treated as one plan amendment. The point of the two regulations is exactly the same: the anti-cutback provision applies to a plan amendment as a whole, not to discrete components of a plan amendment viewed in isolation. See generally 70 Fed. Reg. 47109, 47110-11 (Aug. 12, 2005) (noting that "the rules in [the 1977 Regulation] generally have been carried over to [the 2005 Regulation], except to the extent needed to reflect statutory changes" not relevant here) (attached at Tab H). If there were any doubt as to the meaning of the 1977 Regulation, or its applicability in this case, the Treasury Letter puts it to rest. In that Letter, the Treasury Department explained that the 1977 Regulation and the 2005 Regulation are "virtually identical" and that the 1977 Regulation "would apply to amendments adopted and
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effective prior to the effective date" of the 2005 Regulation. Treasury Letter (Tab A). Based on these observations, the Treasury Department stated that "the interpretive conclusion in the 2005 final regulations," i.e., that a plan amendment that has the net effect of increasing benefits does not violate ERISA's anti-cutback rule, "is by logic equally applicable to" amendments made before the 2005 Regulation's effective date (like the amendment at issue here). Id. As an interpretation of its own 1977 Regulation, the Treasury Department's view on this issue is "controlling." Auer v. Robbins, 519 U.S. 452, 461-462 (1997); see also Long Island Care at Home, Ltd. v. Coke, 127 S. Ct. 2339, 2348-49 (2007) (Department of Labor's "Advisory Memorandum" interpreting two conflicting regulations is "controlling" under Auer); Bassiri v. Xerox Corp., 463 F.3d 927, 930-31 (9th Cir. 2006) (opinion letters written by the Department of Labor interpreting ambiguous ERISA regulations are entitled to Auer deference). The Treasury Department certainly is in the best position to describe the scope and application of a Treasury Department regulation. The upshot is that the 1977 Regulation trumps Michael for exactly the same reasons that this Court has already concluded that the 2005 Regulation trumps Michael. Both regulations were promulgated under the Treasury Secretary's statutory authority to interpret ERISA's anti-cutback provision and the corresponding provisions of the Internal Revenue Code. See Treas. Dec. Int. Rev. 7501, available at 1977 WL 202014 (Aug. 23, 1977) (citing 26 U.S.C. §§ 411, 7805); Reorganization Plan No. 4 of 1978, § 101, 43 Fed. Reg. 47,713, 92 Stat. 3790 (1978), as amended Pub. L. 99-514, § 2, 100 Stat. 2095 (1986). Because ERISA does not directly address the precise question

whether the anti-cutback rule prohibits "a plan amendment that reduces an element of the benefit formula, even if that amendment increases participants' net benefits," the Treasury Secretary is entitled to answer that question by regulation. 11/18/05 Order, at 7-8. And the answer that the Secretary provided in both 1977 and 2005, as this Court again already has held, "is not only reasonable, but also correct." Id. at 8.

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Under basic principles of administrative law articulated in Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), and Brand X, Michael poses no impediment to deferring to the 1977 Regulation, just as it poses no impediment to deferring to the 2005 Regulation. As this Court has explained, "[i]n deciding Michael, the Ninth Circuit did not find that its interpretation was the only one warranted under the statute. Consequently, the

agency regulation should be afforded Chevron deference, and according to Brand X, this is true despite the Ninth Circuit's contrary interpretation as set forth in Michael." 11/18/05 Order, at 8. The fact that the 1977 Regulation was promulgated before Michael, whereas the 2005 Regulation was promulgated after Michael, is of no consequence. The lesson of Brand X is that, where (as here) Congress has delegated authority to administer a particular statute to an administrative agency, reasonable agency interpretations of that statute trump inconsistent judicial interpretations. See 545 U.S. at 982. Indeed, if an agency is entitled to provide a reasonable interpretation after a court has already done so, it follows a fortiori that an agency is entitled to provide a reasonable interpretation before a court has done so: the case for deference is even stronger, not weaker, when the agency has taken the first bite at the apple. See id. at 983 (noting that "whether Congress has delegated to an agency the authority to interpret a statute," and, thus, whether the agency's interpretation is entitled to judicial deference, "does not depend on the order in which the judicial and administrative constructions occur"). And in any event, the agency here announced its authoritative interpretation of the statute both before and after Michael: first in the 1977 Regulation itself, and then again in the recent Treasury Letter interpreting the 1977 Regulation and equating it to the 2005 Regulation. The root of the problem here is that the parties in Michael failed to address the 1977 Regulation. See Appellant's Opening Br., Michael v. Riverside Cement Co.

Pension Plan, No. 99-55519, available at 1999 WL 33625977 (9th Cir. Oct. 1999); Appellee's Response Br., Michael v. Riverside Cement Co. Pension Plan, No. 99-55519, available at 1999 WL 33625978 (9th Cir. Dec. 6, 1999); Appellant's Reply Br., Michael
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v. Riverside Cement Co. Pension Plan, No. 99-55519, available at 2000 WL 33997751 (9th Cir. Jan. 6, 2000). Thus, it is not surprising that the Ninth Circuit in Michael failed to address the 1977 Regulation too. Indeed, nowhere did Michael indicate any

awareness that the Treasury Department had anything to say about the meaning of ERISA's anti-cutback provision. Not even the dissent in Michael cited the 1977

Regulation. Accordingly, Michael sheds no light on the 1977 Regulation and in no way undercuts the legal force of that Regulation. To the contrary, it is elementary that "[q]uestions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents." Webster v. Fall, 266 U.S. 507, 511 (1925); see also United States v. L.A. Tucker Truck Lines, 344 U.S. 33, 37-38 (1952) (prior decision is not precedent on point neither raised by counsel nor discussed in the opinion of the court in that case); Miller ex rel. NLRB v. California Pac. Med. Ctr., 991 F.2d 536, 541 (9th Cir. 1993) ("It is a venerable principle that a court isn't bound by a prior decision that failed to consider an argument or an issue the later court finds persuasive."); Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285, 1288 (9th Cir. 1985) ("[U]nstated assumptions on non-litigated issues are not precedential holdings binding future decisions."); Bova v. U.S. Bank, N.A., 446 F. Supp. 2d 926, 936 n.5 (S.D. Ill. 2006) (declining to apply circuit precedent that did not address relevant issue); Archer Daniels Midland Co. v. Aon Risk Servs., Inc. of Minn., 187 F.R.D. 578, 583 (D. Minn. 1999) (declining to apply circuit precedent that did not address relevant issue; "While we are properly constrained to adhere to the directives of our Court of Appeals, we conclude that the holding [by the Court of Appeals] does not control our analysis here. Under venerable authority, a prior decision will not constitute binding precedent as to issues which were not addressed in that decision."). The judicial process could not work otherwise: subsequent litigants who actually make the right arguments cannot be bound by prior precedents that did not consider, and therefore necessarily did not reject,

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those arguments. See, e.g., Waters v. Churchill, 511 U.S. 661, 678 (1994) ("[C]ases cannot be read as foreclosing arguments they never dealt with."). Indeed, the Ninth Circuit has squarely held that courts are not bound by earlier decisions that fail to address authoritative agency guidance. See Omohundro v. United States, 300 F.3d 1065, 1067 (9th Cir. 2002) (per curiam). In that case, a prior circuit precedent, Miller v. United States, 38 F.3d 473 (9th Cir. 1994), construed a provision of the Internal Revenue Code without addressing an on-point IRS Revenue Ruling. The district court in Omohundro applied Miller, but the Ninth Circuit reversed. As the Ninth Circuit explained, "[i]n deciding Miller, we did not consider [IRS] Revenue Ruling 76511 which was directly on point and in effect at the time." 300 F.3d at 1067. The key question, thus, was not whether Miller was correctly decided, but whether the IRS Revenue Ruling represented a reasonable interpretation of the statute entitled to judicial deference. See id. at 1067-68. After concluding that it was a reasonable interpretation, the Ninth Circuit concluded (even before Brand X) that it need not follow Miller. See id. at 1069. Needless to say, the Supreme Court's 2005 decision in Brand X only confirms Omohundro's holding that a reasonable agency interpretation of a statute administered by the agency trumps an inconsistent judicial interpretation. See Brand X, 545 U.S. at 982-83 ("Only a judicial precedent holding that the statute unambiguously forecloses the agency's interpretation, and therefore contains no gap for the agency to fill, displaces a conflicting agency construction."); see also id. at 984-85 (where a prior Ninth Circuit precedent held only that its interpretation was "the best" reading of the provision at issue, "not that it was the only permissible reading of the statute," the agency's contrary interpretation was entitled to Chevron deference) (emphasis added). The bottom line here is that the Treasury Department's reasonable interpretation of ERISA's anti-cutback provision, as expressed in the Treasury Letter authoritatively interpreting the 1977 Regulation, provides the law governing this case. Because the

1977 Regulation was neither presented to nor considered by the Ninth Circuit in Michael, that case does not preclude this Court from applying that Regulation here to
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deny plaintiffs' motion for summary judgment on their anti-cutback claim and grant defendants' corresponding motion to dismiss. CONCLUSION For the foregoing reasons, defendants respectfully request this Court to reconsider its grant of summary judgment in favor of plaintiffs on their anti-cutback claim, and grant defendants' corresponding motion to dismiss that claim. Respectfully submitted this 16th day of November, 2007. OSBORN MALEDON, P.A. 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 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 70112-4017 Amy Covert PROSKAUER ROSE LLP One Newark Center, 18th Floor Newark, NJ 07102-5211 Christopher Landau, P.C. Eleanor R. Barrett KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005-5793 Attorneys for Defendants

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Case 2:04-cv-00424-ROS
1809294_2

CERTIFICATE OF SERVICE I do certify that on November 16, 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 all CM/ECF registrants.

s/Kelly Dourlein

16 Document 323 Filed 11/16/2007

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