States Ask 5th Circuit to Reconsider Fiduciary Ruling

By Nevin Adams • May 18, 2018 • 0 Comments

The states of California, New York and Oregon have asked the 5th Circuit to reconsider its decision denying the states’ motion to intervene in litigation involving the DOL fiduciary rule.

In a filing on May 16, the states explain that since the federal government “is no longer pursuing this appeal… the exceptional importance of the issues, and the grave harm the States will suffer as a result of the panel opinion — billions of dollars in lost retirement income to their residents and tens of millions of dollars in lost tax revenue — the States respectfully request that the Court reconsider its decision.”

The filing comes in response to the May 2 dismissal of the attempt by the three states to intervene in the March 15 decision that vacated the fiduciary rule “in toto,” accompanied by a motion to obtain an “en banc” review of that March 15 decision by the entire court. On March 15, by a 2-1 vote, the 5th Circuit held that the Department of Labor lacked authority to promulgate its fiduciary rule, reasoning that the rule’s interpretation of investment advice fiduciary was overreaching.

End Denial?

In the most recent attempt to get the court to reconsider its decision, the plaintiffs argue that the denial of the motion to intervene is “especially troubling because it effectively insulates the decision to vacate the Fiduciary Rule from further appellate scrutiny.” By way of support for this position, they note that, “as stated in Chief Judge Stewart’s dissent, ‘nothing in the statutory text forecloses DOL’s current interpretation,’” and that “the panel opinion conflicts with decisions of three district courts that have upheld the Fiduciary Rule in toto as well as with the Tenth Circuit Court of Appeals decision upholding one part of the Fiduciary Rule.”

And should the 5th Circuit decline to do so, “the States ask that the Court direct the Clerk to permit the filing of a petition seeking review of that order by the full Court,” explaining that ”the States believe that a petition seeking en banc review of such an order should be permissible, at least under the unusual circumstances of this case.” The plaintiffs state that they are “unaware of any Fifth Circuit authority clearly prohibiting a proposed-intervenor whose motion to intervene on appeal has been denied by a panel of the Court from seeking review of that denial by the full Court,” and assert that “at least one Fifth Circuit decision has granted a petition for en banc rehearing after a motion to intervene was denied by the panel.”

Moreover, the plaintiffs state that “if the Court concludes that a party denied intervention by a panel under the circumstances presented here may not seek review of that denial by the full Court, the States respectfully request an express ruling on that point.”

Intervening Meaning

The plaintiffs cited 5th Circuit precedence that requests for intervention are “liberally construed” and doubts are to be “resolved in favor of the proposed intervenor,” recounting the right of a party to “intervene in an appeal as of right” if:

  • its motion is timely;

  • it has a legally protected interest in the action;

  • the outcome of the case may impair that interest; and

  • the existing parties do not adequately represent that interest.

They then reiterate their previous arguments in support of the case already made, specifically that:

  • The states’ motion “…was filed as soon as it became clear that the Department of Labor was unlikely to seek rehearing and that a motion to intervene was necessary; before that time, a motion to intervene would have been improvident.”

  • The states have “demonstrated, through the declarations of economists, and based on the Department of Labor’s own economic data, that they will lose more than $58 million in a specific category of state income tax (withdrawals from individual retirement accounts), which is directly attributable to the elimination of the Fiduciary Rule.”

  • The decision vacating the Fiduciary Rule “…clearly impairs the States’ interest in protecting those tax revenues.”

  • The Department of Labor, “…which has taken no position on the motion to intervene, no longer adequately represents the States’ interest — and the law requires only a showing that representation ‘may’ be inadequate.”

The plaintiffs here acknowledge that prior to filing this motion, they contacted both the original plaintiffs’ counsel and the Department of Justice, and that while plaintiffs’ counsel indicated they would oppose the motion, the Department of Justice indicated that the government “takes no position on the motion.”

We shall see…