DOL Makes ‘Moot’ Point in Fiduciary Litigation

By Nevin Adams • August 25, 2017 • 0 Comments
In a written response to a judge in litigation involving the fiduciary rule’s anti-arbitration provision, the Labor Department says the provision will “likely be mooted in the near future.”

The letter (Thrivent Fin. for Lutherans v. Acosta, D. Minn., No. 0:16-cv-03289-SRN-DTS, letter to judge filed Aug. 23, 2017) was in response to the request of Judge Susan Nelson’s direction to the parties “meet and confer regarding the possibility of a nonenforcement agreement that gives Thrivent complete relief from the threat of enforcement.”

In July, the Labor Department withdrew its cross-motion for summary judgment in the Thrivent case, noting its stance that it was no longer defending “the one regulatory provision challenged in this action — the application of Best Interest Contract (BIC) Exemption § II(f)(2) to arbitration agreements.” In that motion, the Labor Department had gone on to say that if the court chose not to stay the case, it wouldn’t oppose the court’s granting summary judgment to Thrivent, vacating the BICE as applied to arbitration agreements entered into by the financial firm, noting that since “circumstances have changed” and acknowledging that the Labor Department “no longer defends the arbitration-restricting condition, and therefore does not intend to enforce the provision. And unless Plaintiff amends its contracts to include the limitation, no mechanism for private enforcement of the provision is apparent.”

In the August 23 letter, the Labor Department notes that since that direction from the court that counsel for the parties conferred twice by telephone, that the Labor Department had considered the plaintiffs’ proposals, “explained its reasons for not favoring those proposals, and suggested an alternative approach that could address Plaintiff’s concerns.” Noting that it did not see a “need to address the merits of the arguments contained in Plaintiff’s letter at this time”, in the letter the DOL said that while it continues to believe that a stay (a “pause”) of the litigation would be “the most efficient way” to address the plaintiffs’ claim (it has filed for that stay unsuccessfully before), it went on to state that the provision “…is not currently applicable to Plaintiff and which will likely be mooted in the near future.”

Noting that it is “willing to address mootness in the context of Plaintiff’s planned new motion”, the Labor Department has proposed that the parties provide “limited briefs addressing the question as to which the Court expressed particular concern at the recent hearing in this matter: mootness.” They go on to recommend a briefing schedule on the mootness question under which only two briefs would be filed; theirs by Sept. 8, 2017 (in which the Labor Department says they could also address any developments that would relate to “mootness and our pending stay motion — such as a specific non-enforcement policy”) and Thrivent’s by Sept. 22, 2017.

Arbitration “Cause”

Last fall, Thrivent Financial for Lutherans filed suit in the U.S. District Court for the District of Minnesota, claiming that the requirements of the Best Interest Contract Exemption (the BICE) would, “by its terms and in its effect, require Thrivent either to cease conducting certain business that is beneficial to its Members or to abandon its longstanding commitment to resolving Member disputes amicably and through private, one-on-one mediation and arbitration.” Earlier this year, citing President Trump’s Feb. 3, 2017 memorandum to the Secretary of Labor directing the Secretary to “examine the Fiduciary Duty Rule,” Judge Susan Nelson opted to dismiss that request.

But that was before the Labor Department filing of a brief in another suit involving the fiduciary regulation — a brief that, while it maintained the Labor Department’s support for the fiduciary regulation and the DOL’s right to impose those new requirements, also commented that the BIC Exemption’s condition restricting class-litigation waivers should be vacated insofar as it applies to arbitration clauses because advisers (and here the “e” reference is appropriate) who wanted to qualify for the BIC would have been blocked from prohibiting class actions. In the brief, the Labor Department referred to this result as “a discriminatory obstacle to arbitration that cannot be harmonized” with the Federal Arbitration Act.

Stay tuned.