DOL Wins Fiduciary Rule Case in Texas
Lynn had promised a ruling by Friday. The nine plaintiffs, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute, sued the DOL over its fiduciary rule in a Texas court.
The nine plaintiffs in the Texas case are represented by former Labor Department solicitor Eugene Scalia, who’s now a partner in Gibson, Dunn & Crutcher’s Washington office and a son of deceased Supreme Court Justice Antonin Scalia.
In a joint statement, the co-plaintiffs stated: "We continue to believe that the Department of Labor exceeded its authority, and we will pursue all of our available options to see that this rule is rescinded." President Donald Trump's recent directive to the Department to review the rule, is "reflecting well-founded, ongoing and significant concerns about the rule, is a welcome development.”
Said Lynn in her ruling: "In contrast to the situations in the cases cited by Plaintiffs, in [the Employee Retirement Income Security Act] Congress did speak clearly, and assigned the DOL the power to regulate a significant portion of the American economy, which the DOL has done since the statute was enacted."
Congress, Lynn said, "gave the DOL broad discretion to use its expertise and to weigh policy concerns when deciding how best to protect retirement investors from conflicted transactions."
Lynn’s opinion “is a complete vindication of [former Labor Secretary] Tom Perez, Phyllis Borzi, and the rest of Obama’s Department of Labor,” said Tom Clark, of counsel with The Wagner Law Group, in a comment to ThinkAdvisor Wednesday.
“Even with the attempt to find a favorable venue in the Northern District of Texas, every district court to address these issues [has] now ruled in favor of positions taken by the previous administration. That being said, the current administration and the Department of Labor still have the ability to seek a stay in the applicability of the rule and to ultimately modify or repeal the rule,” Clark pointed out.
While Lynn’s ruling “might make that task harder and more politically distasteful, the new Department of Labor under Trump is still in the driver’s seat. However, I think it is fair to expect that opinions such as this one will embolden supporters of the fiduciary rule who will ultimately seek to challenge the new Department of Labor in court. It seems the situation will get messier before the industry has reliable clarity.”
Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles, agreed that even with Lynn’s ruling, “It is still possible that the Trump DOL will take a different political position and delay and modify or delay and kill the fiduciary rule. But, this is one less reason that they can use for that purpose.”
Instead, DOL “will need to conclude that the fiduciary rule limits access of plans and IRA owners to needed investment advice and/or increases the cost of that advice by amounts that exceed any offsetting benefits of the rule,” Reish adds. “At this point, I think that there is distinct possibility that the DOL will make those findings.”
Said Reish: “So, where are we? We are still waiting to see if the DOL will delay the applicability date of the fiduciary rule. Once that happens, the next steps will unfold. I suspect that we will be watching this in slow motion for at least another year.”
Micah Hauptman, financial services counsel for the Consumer Federation of America, added that Lynn's ruling is now "the third opinion that demolishes all of the industry opponents’ arguments. The opinion chronicles how DOL engaged in a robust economic analysis proving the need for the rule, shows that the DOL’s regulatory approach was the product of reasoned decisionmaking, and validates the DOL’s analysis that the rule will benefit retirement savers. It also refutes the industry lobbyists’ claims that the rule is somehow unworkable. The judge clearly was not buying the industry lobbyists’ sky-is-falling claims and nobody else should either."
The U.S. Justice Department on Wednesday, representing the Labor Department, asked Lynn to postpone issuing her ruling in the case brought against Labor’s fiduciary rule.
In the Wednesday filing, DOJ told Lynn that “it would not serve judicial economy to issue a ruling at this point; nor would it be efficient for this Court, for the Court of Appeals for this Circuit, or for the parties to be confronted by a range of appellate issues at this time.”
DOJ cited that Labor is “carefully reviewing the issues raised” in President Donald Trump’s Feb. 3 memorandum telling Labor to review the fiduciary rule “with the immediate goal of deciding the best course of action to implement its spirit and intent.”
As noted by acting Labor Secretary Edward Hugler, Labor, DOJ wrote, “is assessing its legal options for delaying the applicability date (the first of which is April 10). Moreover, the outcome of the department’s review may differ in relevant ways from the April 8, 2016 rulemaking challenged by Plaintiffs.”
For example, DOJ continued, “although the department conducted an exhaustive regulatory impact analysis in this rulemaking, its cost-benefit analysis was challenged in this litigation and could be updated. The rulemaking may additionally be ‘revised or rescinded.’”
Further, DOJ stated, “a judicial decision on a rulemaking as complex as this while the department is undertaking the examination and potential promulgation of a proposal pursuant to the Presidential Memorandum can be expected to cause confusion with the affected public, whether parties to this litigation or not.”
Therefore, DOJ said that “defendants respectfully request that the court stay the proceedings in this action pending the results of the review directed by the president.”
Defendants, rather, propose that an “initial joint status report be due on March 10, 2017, to update the court on the department’s actions and address whether a continued stay is warranted.”
Originally published on ThinkAdvisor. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.