DISPOSITION: [*1] Rybarczyk and Mizuba's motions for summary judgment granted; and TRW's motions for summary judgment denied. 

COUNSEL: For RICHARD J RYBARCZYK, On Behalf of Himself and All Others Similarly Situated, plaintiff (95-CV-2800): Thomas R. Theado, Esq., Robert D. Gary, Esq., Thomas A. Downie, Esq., Gary, Naegele & Theado, Lorain, OH. Eric H. Zagrans, Esq., Zagrans Law Firm, Elyria, OH.

For TRW, INC., defendant (95-CV-2800): John Winship Read, Esq., Vorys, Sater, Seymour & Pease, Cleveland, OH. Deborah P. Warner, Esq., T.R.W., Inc., Cleveland, OH. Ronald J. Cooke, Esq., J. Kevin Lilly, Esq., Littler, Mendelson, Fastiff, Tichy & Mathiason, Los Angeles, CA. For TRW SALARIED PENSION PLAN, defendant (95-CV-2800): John Winship Read, Esq., (See above). Deborah P. Warner, Esq., (See above). Ronald J. Cooke, Esq., (See above), J. Kevin Lilly, Esq., (See above).

For MINORU MIZUBA, plaintiff (96-CV-2493): Paul E. Slater, Esq., Bruce Sperling, Esq., Sperling, Slater & Spitz, Chicago, IL. For WILLIAM RITTENHOUSE, plaintiff (96-CV-2493): Paul E. Slater, Esq., (See above), Bruce Sperling, Esq., (See above).

For TRW INC., defendant (96-CV-2493): Ronald J. Cooke, Esq., J. Kevin Lilly, Esq., Littler, [*2] Mendelson, Fastiff, Tichy & Mathiason, Los Angeles, CA.

JUDGES: ANN ALDRICH, UNITED STATES DISTRICT JUDGE

OPINIONBY: ANN ALDRICH

OPINION: MEMORANDUM AND ORDER

ALDRICH, J.

These consolidated class actions against TRW Inc., and the TRW Salaried Pension Plan, arise under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"). Richard Rybarczyk represents a class of TRW retirees who retired between October 23, 1986 and July 1, 1996, n1 and received lump sum distributions of their pension benefits in excess of $25,000. Minoru Mizuba and William Rittenhouse represent a class of TRW retirees who retired between January 1, 1989 and July 1, 1996, and received lump sum distributions of their pension benefits in excess of $25,000. Both plaintiff classes allege that TRW unlawfully used an interest rate higher than that allowed under ERISA and the Internal Revenue Code to calculate their lump sum retirement benefits under the plan.

[*3]

Before the Court are cross-motions for summary judgment filed by the Rybarczyk class, the Mizuba class, and TRW. For the reasons set forth below, the Court grants plaintiffs' motions for summary judgment and denies TRW's motions for summary judgment.

I.

The TRW Salaried Pension Plan is a qualified defined benefit pension plan subject to the requirements of ERISA and the Internal Revenue Code. Retirement benefits under the plan automatically come in the form of a monthly lifetime annuity. The "normal" retirement benefit is the amount a retiree receives if he or she retires at age 65, the normal retirement age. If an employee retires before the age of 65, his or her monthly payments are spread over a greater number of months. Generally, this would result in a reduction in the monthly payment, since the same amount of money would be spread over a greater number of months.

In order to avoid this result, and as an incentive to early retirement, TRW also offers a "subsidized" retirement benefit. With the "subsidized" annuity, the monthly payments for employees retiring between the ages of 60 and 65 are not reduced, and the monthly payments for employees retiring under age 60 are reduced [*4] to a lesser extent. Thus, the effect of the subsidy is to grant the early retiree a higher monthly payment than he or she would receive otherwise.

The plan also offers retirees the option of receiving their benefits in the form of a single lump sum distribution in lieu of the monthly lifetime annuity. The lump sum distribution is the present value of the monthly lifetime annuity, calculated by applying a specified interest rate to the monthly annuity stream. The higher the interest rate applied, the lower the lump sum distribution will be.

Prior to 1986, the plan provided that lump sum distributions of subsidized early retirement benefits would be calculated by applying the Moody's Aaa bond rate to derive the present value of the annuity stream. In 1984, Congress enacted the Retirement Equity Act ("REA"), which provided, in relevant part, that lump sum distributions under qualified plans must be calculated using an interest rate no greater than the immediate interest rate set by the Pension Benefit Guaranty Corporation ("the PBGC rate"). See Pub.L.No. 98-397, 98 Stat. 1426 (1984)(amending ERISA §§ 203(e)(2) and 205(g)(3), 29 U.S.C. § 1053(e)(2)and 1055(g)(3), and I.R.C. §§ 411(a)(11) [*5] and 417(e)(3)). The REA also amended the "anti-cutback" rules of ERISA and the I.R.C., ERISA § 204(g), 29 U.S.C. 1054(g), and I.R.C. § 411(d)(6), to provide that early retirement benefits and retirement-type subsidies would be included within the benefits protected from elimination or reduction by plan amendment.

On October 22, 1986, Congress set a new ceiling on the permissible interest rate, in the Tax Reform Act of 1986 ("TRA"). Section 1139 of the TRA n2 required the use of an interest rate no greater than 120% of the PBGC rate in calculation of lump sum distributions of benefits exceeding $25,000. See Pub.L.No. 99-514 § 1139, 100 Stat. 2085, 2487 (1986), codified at ERISA §§ 203(e)(2) and 205(g)(3), 29 U.S.C. §§ 1053(e)(2) and 1055(g)(3)(1988) and I.R.C. §§ 411(a)(11)(B) and 417(e)(3)(1988). n3 The § 1139 interest rate was made retroactive for distributions on or after January 1, 1985, except for distributions made in compliance with the REA.

[*6]

In response to the TRA, TRW amended its plan in 1986, retroactive to January 1, 1985, to provide for the calculation of lump sum retirement benefits through use of the § 1139 interest rate. At the same time, the 1986 amendment to the plan eliminated the subsidized portion of the early retirement benefit from the calculation. In 1988, TRW amended its plan again, retroactive to January 1, 1985. The 1988 amendment restored the subsidized early retirement benefit to the lump sum calculation, and provided for calculation of [*7] benefits over $25,000 by using whichever of two methods yielded the greater amount: (i) the Moody's rate applied to the subsidized early retirement benefit, or (ii) 120% of the PBGC rate [the § 1139 or the § 417(e) rate] applied to the unsubsidized early retirement benefit. Thus, the 1988 amendment provided employees with "either the amount received under the [pre-1986] plan or the amount received under the amended Plan, whichever was greater." Costantino v. TRW, 13 F.3d 969, 973 (6th Cir. 1994). TRW included the same two-prong formula in its 1989 amendment to the plan, providing that all distributions "with respect to 1989 and thereafter" would be calculated under that formula. See § 5.5(b) of the 1989 plan. It is the 1988/89 formula that is at issue in these cases. n4

[*8]

A. The Costantino litigation

In Costantino v. TRW, 773 F. Supp. 34 (N.D. Ohio 1991), aff'd in part, modified in part, 13 F.3d 969 (6th Cir. 1994), a class of TRW employees who retired between January 1, 1985 and October 22, 1986, alleged that TRW unlawfully calculated their lump sum benefits under the plan. Before this Court were the 1986 and 1988 amendments to the plan. This Court held that TRW's elimination of the subsidy in the 1986 plan amendment violated the "anti-cutback" rules, ERISA § 204(g), 29 U.S.C. § 1054(g), and I.R.C. § 411(d)(6), which prohibit employers from amending pension plans to eliminate or decrease early retirement benefits or subsidies. Costantino, 773 F. Supp. at 43. Furthermore, this Court found that by reducing the amount of lump sum benefits payable to retirees, TRW had circumvented the intended result of § 1139 of the TRA, which was "to place a cap on the interest rate used to value lump sum distributions." Id. Noting that "Congress intended that this interest rate cap would result in retirees receiving higher, not lower, benefits," id., this Court ordered TRW to recalculate the benefits payable to the plaintiff class, by applying [*9] to the monthly life annuity, including any early retirement subsidy, an interest rate of 120% of the PBGC rate in effect at the time of the distribution. Id. at 46.

TRW appealed to the Sixth Circuit, arguing, inter alia, that this Court had erred in ordering TRW to recalculate the retirees' lump sums. See Costantino v. TRW, 13 F.3d 969, 978 (6th Cir. 1994). TRW challenged both the ruling that its elimination of the subsidy violated the anti-cutback rules, and the order that the lump sum subsidized early retirement benefit had to be calculated using the § 1139 rate. The Sixth Circuit affirmed in part this Court's decision, modifying it only with respect to the time at which the PBGC rate should be determined. See id. at 982.

In its decision, the Court of Appeals discussed the two rules that TRW had violated: (1) the anti-cutback rules; and (2) the "valuation rule" contained in Treas. Reg. § 1.411(a)-11(a)(2) (as amended 1994), which the court held requires use of the § 1139 interest rate in present value calculations of lump sum subsidized early retirement benefits. Construing both of these rules, the Court of Appeals held that this Court had not erred "in holding [*10] that Defendants' 1986 Plan amendment violated the anti-cutback rules by eliminating a subsidy for which plaintiffs had already qualified," id. at 978, and that this Court had not erred "in ordering TRW to calculate the present value of the plaintiffs' lump sum distributions, including the subsidized portion of Plaintiffs' benefits, by applying the section 1139 interest rates." Id. at 980.

B. The Rybarczyk and Mizuba litigation

At issue in the instant cases is the two-prong formula for calculating lump sum early retirement benefits, used in both the 1988 plan amendment n5 and the 1989 plan amendment n6. For early retirees who retired after January 1, 1985, who elected lump sum payment, and whose lump sum payment exceeded $25,000, the formula provided that the lump sum would be the greater of (i) the Moody's rate applied to the subsidized early retirement benefit, or (ii) 120% of the PBGC rate [the § 1139 or the § 417(e) rate] applied to the unsubsidized early retirement benefit. The retirees allege that this formula unlawfully uses the Moody's rate in calculating the lump sum distribution of the subsidized early retirement benefit. n7

[*11]

The Rybarczyk class, the Mizuba class, and TRW all move for summary judgment. The threshold issue to be considered by this Court is the applicability of the doctrine of collateral estoppel. Plaintiffs argue that after Costantino, defendants are estopped from denying that the plan must use the § 1139 interest rate to calculate their lump sum benefits. In response, defendants assert that Costantino presented an entirely different issue than that presented here.

II.

Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(e) specifies the materials properly submitted to the Court in connection with a [*12] motion for summary judgment:

Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein . . . The court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits.

The moving party bears the initial burden of showing the absence of a genuine issue as to any material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970). Once a properly supported motion is made, the burden shifts to the non-moving party to demonstrate the existence of a material dispute as provided in Rule 56(e):

an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

The non-moving party cannot [*13] meet its burden by simply attacking the credibility of the moving party's affidavits without setting forth specific facts showing a genuine issue for trial. See Bose Corp. v. Consumers Union of U.S., 466 U.S. 485, 512, 80 L. Ed. 2d 502, 104 S. Ct. 1949 (1984); see also Fed. R. Civ. P. 56(e) Adv. Comm. Notes (1963 Amendment).

In determining whether there exists a genuine issue of material fact, this Court must view the evidence in the light most favorable to the non-moving party. Adickes, 398 U.S. at 157; White v. Turfway Park Racing Ass'n., Inc., 909 F.2d 941, 943-44 (6th Cir. 1990). A fact is "material" only if its resolution will affect the outcome of the lawsuit. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Determination of whether an issue is "genuine" requires consideration of the applicable evidentiary standards. Thus, in most civil cases, the court must decide whether the evidence is such that "reasonable jurors could find by a preponderance of the evidence that the [non-moving party] is entitled to a verdict," id. at 252, or whether the evidence is "so one-sided that [the moving party] must prevail as a [*14] matter of law." Id.

III.

Here, the parties agree that there is no genuine issue of material fact. Therefore, this Court must decide whether, as a matter of law, the decisions in Costantino operate to stop TRW from litigating these cases. The Court first addresses the general requirements of collateral estoppel, and second, the concerns specific to its use in an "offensive" manner, as here, by a plaintiff seeking to bind a defendant to an adverse decision in a prior case brought by another party.

A. Basic Collateral Estoppel

The doctrine of collateral estoppel precludes a party from relitigating issues resolved against it in a prior proceeding. Parklane Hosiery Co., Inc., v. Shore, 439 U.S. 322, 326, 58 L. Ed. 2d 552, 99 S. Ct. 645 (1979). Collateral estoppel "protect[s] litigants from the burden of relitigating an identical issue with the same party or his privy and . . . promotes judicial economy by preventing needless litigation." Id. In addition, it encourages reliance on adjudication by preventing inconsistent decisions. United States v. Mendoza, 464 U.S. 154, 158, 78 L. Ed. 2d 379, 104 S. Ct. 568 (1984)(citing Allen v. McCurry, 449 U.S. 90, 94, [*15] 66 L. Ed. 2d 308, 101 S. Ct. 411 (1980)).

A party invoking collateral estoppel must show that:

(1) the precise issue raised in the present case was raised and actually litigated in the prior proceeding;

(2) determination of the issue was necessary to the outcome of the prior proceeding;

(3) the prior proceeding resulted in a final judgment on the merits; and

(4) the party against whom estoppel is sought had full and fair opportunity to litigate the issue in the prior proceeding.

United States v. Sandoz Pharmaceuticals Corp., 894 F.2d 825, 826-27 (6th Cir.), cert. denied, 498 U.S. 810, 112 L. Ed. 2d 21, 111 S. Ct. 45 (1990) (citing Detroit Police Officers Ass'n v. Young, 824 F.2d 512, 515 (6th Cir. 1987)).

The retirees argue that TRW is estopped from litigating the issue of whether it is required to use the § 1139 rate in discounting the plaintiffs' lump sum subsidized early retirement benefits to present value, because TRW already litigated, and lost, that precise issue in Costantino. They point out that Costantino held that "where a plan provides that a lump sum distribution of a subsidized early retirement benefit is available as an option, [*16] the section 1139 interest rate must be applied to calculate the value of the distribution." Costantino, 13 F.3d at 979. The retirees assert that this § 1139 holding was separate from the court's anti-cutback holding.

TRW, on the other hand, asserts that the issue raised in the instant cases is different from the issue decided in Costantino. First, TRW argues that the Costantino litigation dealt exclusively with the plan's violation of the anti-cutback rules, and that its holding does not apply to the situation of the Rybarczyk and Mizuba plaintiffs, all of whom retired after the 1986 amendment Costantino deemed a cutback of benefits. In fact, TRW argues, the Costantino court specifically noted that its holding would not apply in the case of prospective operation of the amendment.

Second, TRW argues that even if Costantino held that the § 1139 rate applies whenever a lump sum distribution of subsidized benefits is available as an option, irrespective of the issue of retroactivity, the formula at issue in these cases does not provide such an option. For both of these reasons, TRW argues, the Costantino holding does not preclude it from litigating the issue [*17] of whether it must use the § 1139 rate in calculating the benefits of the Rybarczyk and Mizuba classes. As is explained below, neither of TRW's arguments is persuasive.

1. Costantino's § 1139 holding

Although TRW interprets Costantino as purely an anti-cutback case, it is clear that the Sixth Circuit's opinion did not rest solely on that issue. In the course of its opinion, the court separated the issue of the unlawful cutback of the subsidy from the issue of the proper interest rate to be applied in discounting benefits to present value. In Section IIIA, the court discussed the plan's elimination of the subsidized portion of early retirement benefits from the lump sum calculations, see Costantino, 13 F.3d at 977-978, concluding that "Defendants' 1986 Plan amendment violated the anti-cutback rules by eliminating a subsidy for which Plaintiffs already qualified." Id. at 978. In Section IIIB, the court discussed the application of the § 1139 interest rate, id. at 978-980, concluding that TRW was required "to calculate the present value of Plaintiffs' lump sum distributions, including the subsidized portion of Plaintiffs' benefits, by applying the section 1139 [*18] interest rates." Id. at 980 (emphasis added). Thus, the elimination and calculation issues were considered separately. Indeed, the court explicitly held that "plaintiffs were entitled by law to both the subsidies and the application of the section 1139 rate," id. at 978 (emphasis by the court), because, as it explained, "the REA protected subsidies for which Plaintiffs already qualified, and the TRA provided that the present value of Plaintiffs' benefits is to be determined at the section 1139 rate." Id.

The court's opinion suggests that TRW itself litigated the case as if it involved two wholly separate issues, by arguing, first, that elimination of the subsidy was legal, and second, that even if it were required to provide the subsidy for which retirees had already qualified, it did not have to apply the § 1139 rate in calculating its present value. TRW argued that the § 1139 rate did not apply to the subsidized portion of the benefits, because subsidized benefits, by definition, were not "accrued" benefits. Id. The court clearly rejected this argument, which TRW attempts to raise again here, holding that regardless of the definition of accrued benefits, [*19] subsidized benefits are treated as accrued benefits for the purpose of the interest rate provision, "for the sole purpose of limiting an employer's ability to distribute benefits without appropriately calculating the value of any subsidies the employer offers." Id. at 979.

Costantino's holding on the calculation issue was clear. The court found the "valuation rule" of Treas. Reg. § 1.411(a)-11(a)(2) to be dispositive:

We return now to Defendants' argument that the interest rates established in section 1139 apply only to determine the present value of the retirees' "accrued benefits," which, by definition, include only the unsubsidized portion of the benefits. If Defendants are correct, then the district court erred by ordering that they calculate the present value of the subsidized portion of Plaintiffs' benefits using the section 1139 interest rate.

Plaintiffs respond by pointing out that [Treas. Reg. § 1.411(a)-11(a)(2)] clearly states that the 1139 rate applies to determine the value of a subsidized early retirement benefit . . . . We agree with Plaintiffs that this regulation is dispositive of the question before us. Under section 1.411(a)-11(a)(1), Defendants [*20] may not distribute Plaintiffs' benefits without complying with the valuation rule of section 1.411(a)-11(a)(2). This valuation rule expressly requires that, where a plan provides that a lump sum distribution of a subsidized early retirement benefit is available as an option, the section 1139 interest rate must be applied to calculate the value of the distribution.

Id. at 978-79. The court held that although TRW was not required to offer a lump sum distribution of a subsidized early retirement benefit, any such benefit that TRW did offer had to be calculated using the § 1139 rate. Id. at 979.

In so holding, the court gave no indication that its interpretation of the valuation rule rested on the anti-cutback principle. TRW places much emphasis on the following portion of the Costantino opinion, which it interprets as limiting the Costantino holding to cases of retroactive elimination of benefits:

Defendants respond that, as of the 1986 Plan amendment, their Plan no longer offered the optional lump sum distribution of a subsidized early retirement benefit. Thus, they argue, section 1.411(a)-11(a)(2) does not require the section 1139 rate to be [*21] applied to subsidized benefits under the post-amendment Plan. While this conclusion about the post-amendment Plan is true, it is not relevant in the present case, in which Plaintiffs qualified for their subsidies prior to the 1986 Plan amendment. As we explained in the previous section, Defendants were not permitted to cut back the subsidized benefits for which Plaintiffs qualified pre-amendment. Consequently, section 1.411(a)-11(a)(2) applies to Defendants' pre-amendment Plan in the present case.

Id. at 979. TRW argues that here, the Costantino court acknowledged that use of the § 1139 rate was required only because the Costantino retirees had been retroactively denied a benefit for which they had already qualified. Thus, according to TRW, this language demonstrates that the court's calculation holding was in fact rooted in its anti-cutback holding.

Although the court did distinguish between prospective and retrospective elimination here, it did so with respect to the anti-cutback issue, not the interest rate issue. As the court had already held, nothing requires a plan to offer a lump sum distribution of a subsidized benefit. Thus, as applied prospectively, [*22] the 1986 amendment's failure to offer the subsidy was perfectly legal.

As for the interest rate to be applied under a prospective application of the 1986 amendment, the cited language merely states the obvious. The court allowed that "section 1.411(a)-11(a)(2)[did] not require the section 1139 rate to be applied to subsidized benefits under the post-1986 amendment Plan" because subsidized benefits were no longer payable as a lump sum under the 1986 plan amendment. Thus, the court was making a simple point: if the subsidized portion is never to be included in the lump sum calculation, as under the 1986 amendment, there is no need to reduce the subsidy to present value, and therefore, no need for the § 1139 rate.

Rather than limiting its holding that § 1.411(a)-11 required use of the § 1139 rate in calculating lump sums, see id. at 979 & n.9, the court was merely reiterating it. In fact, TRW's interpretation of this paragraph is directly contradicted by the conclusion the court reached at the end, namely, that "section 1.411(a)-11(a)(2) applies to Defendants' pre-amendment Plan." Id. at 979 (emphasis by the court). Under the "pre-amendment plan" to which the court [*23] referred, lump sum subsidized benefits were calculated by applying the Moody's rate. Id. at 972. It was those benefits to which TRW had to apply the § 1139 rate, and it is the payment of those very same benefits that is being challenged here. The court clearly held that § 1139 applies whenever a plan calculates the present value of subsidized benefits. Reading this portion of the court's opinion, as TRW does, to hold that § 1139 applied to the pre-1986 amendment plan only because of the retroactive application of the 1986 amendment, would not only not make sense, but would render the opinion internally inconsistent.

TRW also attempts to get around the court's clear holding by citing Treas. Reg. § 1.417(e)-1(d) (amended in 1995) n8 in support of its position here. That section was before the court in Costantino. Nevertheless, the court found § 1.411(a)-11(a) to be dispositive on the question of whether TRW was required to apply the § 1139 interest rate in calculating the lump sum distribution of subsidized benefits. See id. at 979. In fact, § 1.411(a)-11 expressly states that its valuation rules are the same as those specified in § 1.417(e)-1(d). Thus, when the [*24] court construed § 1.411(a)-11 to require use of the § 1139 rate, it necessarily construed § 1.417(e)-1(d) as well. n9

Finally, [*25] while acknowledging that it is not binding on this Court, TRW points to a favorable IRS determination letter on the 1989 plan as support for its interpretation of Costantino. TRW suggests that because it submitted the Costantino opinion to the IRS in its request for a favorable determination letter, the IRS' determination that the 1989 plan was qualified constitutes a recognition by the IRS that the issue in these cases is different from that decided in Costantino.

The Court does not find this particular letter to be persuasive, however. There is no indication that the IRS considered the specific issue involved in these cases. To the extent that it did, the letter gives no indication of the reasoning behind the determination. See, e.g., Hickey v. Chicago Truck Drivers Union, 980 F.2d 465, 469 (7th Cir. 1992) (IRS determination letter entitled to no deference, given the informal nature of these letters and the absence of reasoning); In re Gulf Pension Litig., 764 F. Supp. 1149, 1172 (S.D. Tex. 1991)(IRS determination letter entitled to no weight because no evidence of investigation or legal analysis of facts by IRS), aff'd sub nom. Borst v. Chevron Corp., 36 [*26] F.3d 1308 (5th Cir. 1994), cert. denied, 131 L. Ed. 2d 561, 115 S. Ct. 1699 (1995). Moreover, the IRS' determination was based on the limited materials submitted by TRW, which contained an erroneous interpretation of the Costantino holding. n10 Cf. Shatto v. Evans Products Co., 728 F.2d 1224, 1228 n.2 (9th Cir. 1994) (IRS determination letter entitled to no deference because based on limited information provided by defendant). Thus, even if the IRS did construe the legality of the plan in light of Costantino, its determination is entitled to no weight.

Under Costantino's clear holding [*27] on the calculation issue, TRW is estopped from resurrecting the very arguments it made before the Costantino court. It can no longer assert, as it does here, that § 1139 requires only that retirees receive an amount no less than the "statutory minimum benefit," the § 1139 rate applied to the unsubsidized portion of the benefit. It can no longer assert, as it does here, that the law allows it to calculate the present value of a subsidized benefit without using the § 1139 rate. TRW raised these very arguments before the Sixth Circuit in Costantino, and the Sixth Circuit ruled against it.

2. The 1988/89 formula

TRW also tries to distinguish Costantino on the factual ground that there is no "option" under the 1988/89 formula. According to TRW, even if the Costantino court's § 1139 holding applies in a prospective situation, the instant cases still present a different issue than that adjudicated in Costantino, because the 1988/89 formula does not provide the "option" of which the Costantino court spoke when it held that "where a plan provides that a lump sum distribution of a subsidized early retirement benefit is available as an option, the section 1139 [*28] interest rate must be applied to calculate the value of the distribution." Costantino, 13 F.3d at 979.

As an initial matter, TRW asserts that its interpretation of the formula as "a single optional form of benefit and not two alternative forms of benefit" is within the Board's discretion. Courts defer to the plan administrator's interpretation of plan terms, if the plan gives the administrator discretionary authority to determine eligibility for benefits or construe the terms of the plan. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989). In the instant cases, however, plaintiffs were not denied benefits based on the plan administrator's interpretation of the terms of the plan. The issue here is not the Board's interpretation of plan terms; it is the legality of the plan itself. The only "interpretation" at issue is whether the plan formula falls within the holding of Costantino, and therefore does not violate ERISA. That interpretation is an interpretation of the controlling law, and is not entitled to any deference. See, e.g., Penn v. Howe-Baker Engineers, Inc., 898 F.2d 1096, 1100 & n.3 (5th Cir. 1990); Germany [*29] v. Operating Engineers Trust Fund, 789 F. Supp. 1165, 1167 (D.D.C. 1992). Moreover, as is explained below, the issue of whether the formula provides a "single option" or "two alternative forms of benefit" is simply irrelevant to the question at hand.

TRW argues that the Costantino court applied the § 1139 rate to subsidized benefits in that case because there, under the pre-1986 plan, retirees could choose a lump sum distribution of subsidized early retirement benefits. TRW argues that here, in contrast, once a retiree selects a lump sum distribution, he or she does not have the option of choosing the portion of the formula which includes the subsidized benefit; rather, the retiree automatically receives whichever of the two calculations yields the greater amount. Thus, TRW argues, the subsidy is not "available as an option" as it was in Costantino.

TRW's attempt to distinguish the issue in Costantino on this basis is without merit. First, the court's language in Costantino, as well as the language in § 1.411(a)-11, which the court found to be dispositive, suggests that the "option" to which the court referred was the lump sum distribution, an option which is [*30] indeed available under the 1988/89 formula at issue in the instant cases.

Second, TRW overemphasizes the Sixth Circuit's use of the word "option" in one sentence. When that court referred to a subsidy as "available as an option," it was contrasting the pre-1986 amendment plan, under which the subsidy was available, with the 1986 amendment, under which the subsidy was completely eliminated from the lump sum option. The 1988 amendment reintroduced the subsidy to the lump sum formula. It is mere word play to suggest that because the retiree does not choose between the two prongs of the formula, but merely receives the greater of two amounts, the lump sum distribution of subsidized early retirement benefits is not available as it was in Costantino.

As is clear from the rest of the Costantino opinion, the crucial issue is not the label put on the plan formula, but rather, the operation of the formula itself. In both cases, the relevant formula provided that lump sum distributions of subsidized early retirement benefits would be calculated at the Moody's rate. Moreover, all the retirees in the Costantino, Mizuba, and Rybarczyk classes n11 had their benefits calculated and distributed [*31] using the Moody's rate. A dispute over the type of "option" available to retirees cannot change the fact that both in Costantino and here, the subsidized early retirement benefit was "the particular optional form of benefit in which the benefit [was] distributed." See § 1.411(a)-11(a). Nor can it help TRW avoid Costantino's holding that the § 1139 rate must be applied to any lump sum distribution of subsidized early retirement benefits, in order to effectuate the purpose of § 1.411(a)-11(a)(2), to "limit[] an employer's ability to distribute benefits without appropriately calculating the value of any subsidies the employer offers." Costantino, 13 F.3d at 979 (emphasis added).

[*32]

Finally, not only is the end result under the plan the same here as in Costantino, but the formula itself is substantively identical to the 1988 formula at issue in Costantino. TRW cannot relitigate the issue of the interest rate required under this formula after having lost the first time. In Costantino, the Sixth Circuit held that lump sum distributions of subsidized early retirement benefits had to be calculated using the § 1139 rate. Here, too, plaintiffs received lump sum distributions of subsidized early retirement benefits, and again, the question is whether the lump sum must be calculated using the § 1139 rate. Costantino's definitive ruling on this issue is not changed by the label TRW attaches to the formula under which those calculations were made.

TRW is merely reasserting the same arguments that it raised before this Court and the Sixth Circuit in the Costantino litigation. The precise issue raised in these cases -- whether TRW must use the § 1139 rate when calculating the present value of retirees' subsidized early retirement benefits -- was already litigated and decided in the Costantino litigation. The Sixth Circuit's holding, that the § 1139 [*33] rate must be used, was essential to the final judgment in that case, and TRW had its opportunity to litigate the issue fully and fairly before that court. Therefore, it is estopped from relitigating that issue in these cases.

B. Offensive Collateral Estoppel

Because Rybarczyk and Mizuba seek to employ the doctrine of collateral estoppel offensively, the Court must address additional concerns. "Offensive" use of collateral estoppel occurs where, as here, a plaintiff "seeks to foreclose the defendant from litigating an issue the defendant has previously litigated unsuccessfully in an action with another party." Parklane Hosiery, 439 U.S. at 326 n.4. Because the use of collateral estoppel as a sword rather than a shield raises concerns of unfairness to defendants, and does not promote judicial economy in the same way as defensive collateral estoppel, trial courts have broad discretion to determine when to apply it. Id. at 329-31. See also Clay v. Johns-Manville Sales Corp., 722 F.2d 1289, 1295-96 (6th Cir. 1983), cert. denied sub nom. Raymark Industries, Inc. v. Clay, 467 U.S. 1253, 82 L. Ed. 2d 842, 104 S. Ct. 3537 (1984). Thus, once a plaintiff has met the general [*34] requirements of collateral estoppel, a district court must determine whether he or she may employ it offensively.

A trial court should not allow offensive use of collateral estoppel when its application would be unfair to the defendant or when the plaintiff could have easily joined in the prior action. Parklane Hosiery, 439 U.S. at 652. In Parklane Hosiery, the Supreme Court found that applying the doctrine would not result in unfairness where the party against whom it was sought had every incentive to litigate the first lawsuit fully and vigorously, where the first judgment was not inconsistent with any previous decision, and where there were no procedural opportunities open to the party that were not available in the first suit. Id. at 332.

The application of offensive collateral estoppel in the instant cases will not result in unfairness to TRW. TRW had every incentive to fully and vigorously litigate the first suit, and it did so. Indeed, the very fact that TRW litigated the action through two courts indicates that it mounted a strong defense. Furthermore, the Costantino decision was not inconsistent with any previous decision, nor does the present suit afford [*35] TRW any procedural opportunities that were not open to it in Costantino. Finally, application of offensive collateral estoppel here does not reward "wait and see" plaintiffs who could have easily joined in the prior action. See Parklane Hosiery, 439 U.S. at 330. Therefore, in the exercise of its broad discretion, this Court finds that TRW is estopped from litigating the issue raised in these cases, and is bound by the Sixth Circuit's holding that the § 1139 interest rate must be used to calculate the retirees' lump sum distributions of subsidized early retirement benefits.

IV.

In sum, this Court holds that TRW is estopped from relitigating the issue of whether it must apply the § 1139 interest rate in calculating the class members' lump sum subsidized early retirement benefits under the plan. Therefore, Rybarczyk and Mizuba's motions for summary judgment are granted; and TRW's motions for summary judgment are denied.

This Court orders TRW to re-calculate the class members' lump sum distributions of subsidized early retirement benefits in accordance with this opinion, and to provide them with any cumulative underpayment, with interest, that may result.

This order is final [*36] and appealable.

IT IS SO ORDERED.

ANN ALDRICH

UNITED STATES DISTRICT JUDGE

ORDER

ALDRICH, J.

The Court has filed its memorandum and order granting plaintiffs' motions for summary judgment and denying TRW's motions for summary judgment; therefore,

IT IS ORDERED that plaintiffs' motions for summary judgment are granted and judgment is entered in favor of the plaintiffs and against the defendants; and the case is dismissed.

IT IS FURTHER ORDERED that TRW shall re-calculate the class members' lump sum distributions of subsidized early retirement benefits in accordance with this opinion, and provide them with any cumulative underpayment, with interest, that may result.

IT IS FURTHER ORDERED that this judgment is final and appealable.

ANN ALDRICH

UNITED STATES DISTRICT JUDGE