Skip to main content

You are here

DOL Files Brief in Fiduciary Regulation Litigation

The Department of Labor (DOL) may be reviewing the impact of the fiduciary rule, but they’d still like the court to dismiss challenges to it.

On July 3, the DOL urged the U.S. Court of Appeals for the 5th Circuit to (mostly) uphold the fiduciary regulation, saying that the plaintiffs in the case — including the U.S. Chamber of Commerce, the Financial Services Institute and the Securities Industry and Financial Markets Association (SIFMA) — “…have failed to identify any reason why the fiduciary rule, including its associated exemptions, should be vacated in full.”

The 135-page brief outlined why, in the DOL’s (and, for the very most part, the lower court’s) opinion:

  • the fiduciary rule’s interpretation of ERISA’s definition of an investment-advice fiduciary was reasonable;

  • the Best Interest Contract (BIC) Exemption was, on the whole, a lawful exercise of DOL’s authority to issue administrative exemptions;

  • the BIC Exemption does not impermissibly create a cause of action;

  • the fiduciary rule’s treatment of certain annuities is not arbitrary or capricious; and

  • the plaintiffs’ First Amendment challenge to the fiduciary rule is not viable.

First Amendment

On the last point — a unique challenge to the fiduciary rule — the DOL argued that those constitutional claims were not properly brought to this court (because, as the district court ruled, those claims were forfeited by plaintiffs failing to raise their First Amendment objections during the notice-and-comment process), that the fiduciary rule does not violate the First Amendment, and that the fiduciary rule is a restriction on conduct that only incidentally burdens speech.

There was one exception to the validation of the fiduciary regulation sought by the DOL; the brief said 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 DOL referred to this result as “a discriminatory obstacle to arbitration that cannot be harmonized” with the Federal Arbitration Act.

“Severance of the condition would not impair the function of the exemption or of the fiduciary rule in general,” according to the brief, which went on to explain that “…invalidation of this condition does not mandate invalidation of the remainder of the [best interest contract exemption], let alone the entire fiduciary rule.”

The brief was submitted ahead of oral arguments in the case, currently scheduled for July 31.

Case History

These same plaintiffs had previously sought an emergency injunction blocking the DOL’s fiduciary regulation in April, but were rebuffed by the U.S. Court of Appeals for the 5th Circuit. Ironically, that ruling came on the same day that the Department of Justice asked the court to hold off making its decision, citing President Trump’s Feb. 3 administrative memorandum directing the Labor Department to reevaluate the likely impact of the rule, noting that “it would not serve judicial economy to issue a ruling at this point.”

Last week the DOL — now with Secretary of Labor Acosta at the helm — issued a request for comments on a potential delay in the Jan. 1, 2018, applicability date of certain provisions of the fiduciary regulation. Of course, that delay came in response to the review ordered by President Trump on Feb. 3