Legal Newsline

Wednesday, January 29, 2020

Appeals piling up against DOL over its fiduciary rule

By Jessica Karmasek | Feb 27, 2017


DALLAS (Legal Newsline) - A group of associations that oppose the U.S. Department of Labor’s controversial new fiduciary rule have filed an appeal with a federal appellate court over a Texas federal judge’s decision, issued earlier this month, to uphold the rule.

The DOL released its final rule in April. The rule, sometimes referred to as the conflicts of interest rule, mandates financial professionals who service individual retirement accounts, including IRAs and 401(k) plans, to serve the “best interest” of the savers and disclose conflicts of interest.

On Friday, according to a notice filed in the U.S District Court for the Northern District of Texas, the U.S. Chamber of Commerce, Financial Services Institute Inc., Financial Services Roundtable, Greater Irving-Las Colinas Chamber of Commerce, Humble Area Chamber of Commerce, Insured Retirement Institute, Lubbock Chamber of Commerce, Securities Industry and Financial Markets Association, and Texas Association of Business filed an appeal to the U.S. Court of Appeals for the Fifth Circuit.

The U.S. Chamber’s Institute for Legal Reform owns Legal Newsline.

The Chamber’s lawsuit was filed in June and soon after consolidated with separate lawsuits filed by the American Council of Life Insurers, or ACLI, and the Indexed Annuity Leadership Council.

In their lawsuits, the associations argued the rule will “undermine the interests of retirement savers.” They also argued the rule and related prohibited transaction exemptions, or PTEs, overstep the DOL’s authority, create “unwarranted” burdens and liabilities, and are contrary to the law.

In particular, ACLI argued the new rules violate the First Amendment, as applied to the “truthful commercial speech” of their members. ACLI is a trade association representing nearly 300 member legal reserve life insurance companies operating in the U.S. and abroad.

Judge Barbara M.G. Lynn, in a detailed 81-page order released Feb. 8, shot down the associations’ major arguments, most notably deciding that the rule does not exceed the DOL’s authority.

Lynn said, at worst, the only speech the rules “even arguably regulate” is misleading advice.

“Plaintiffs and their members may speak freely, so long as they recommend products that are in a consumer’s best interest. If an investment adviser recommends a product merely because the product makes the most money for the adviser or financial institution, despite the product not being in the investor’s best interest, such advice is not appropriate for the investor and would be misleading,” she explained.

“Thus, even if Plaintiffs’ First Amendment claim were analyzed as a regulation of commercial speech, the rules would withstand First Amendment scrutiny because they only seek to regulate misleading advice and statements.”

Nine days later, on Feb. 17, a Kansas federal judge granted summary judgment to the DOL in a separate lawsuit filed by Topeka-based Market Synergy Group Inc.

Judge Daniel Crabtree, for the U.S. District Court for the District of Kansas, denied Market Synergy’s motion for preliminary injunction of the rule in November. The company then asked for summary judgment.

Crabtree, in his ruling this month, said he believed he reached the correct decision in his Nov. 28 order and found “no reason to depart from the legal conclusions and reasoning set forth in that order.”

In the November ruling, Crabtree determined that Market Synergy is not likely to prevail on the merits of its claims that the DOL violated the Administrative Procedure Act, or APA, and the Regulatory Flexibility Act, or RFA, by issuing the new rule.

The judge also found that the company could not establish irreparable harm, that the balance of equities tips in its favor, or that an injunction is “in the public interest.”

Market Synergy, like the associations in the Texas federal case, has appealed the judge’s ruling. The company filed its notice of appeal, according to the Kansas federal case docket, to the U.S. Court of Appeals for the Tenth Circuit Feb. 22.

And just last week, a Minnesota federal judge rejected a request by the U.S. Department of Justice to stay a lawsuit brought against the DOL by Minneapolis-based Thrivent Financial for Lutherans.

The DOJ made its request in a letter, dated Feb. 15, to Judge Susan Richard Nelson. It also asked for a continuance of the currently-scheduled March 3 summary judgment hearing.

Thrivent filed its lawsuit in the U.S. District Court for the District of Minnesota in September, arguing the DOL has “exceeded its authority” under the APA.

“The New Rule would dramatically reshape the way life insurers and financial service providers like Thrivent can market and sell their financial products, including mutual funds and both variable and fixed annuities,” Thrivent, a Fortune 500 non-profit organization, wrote in its Sept. 29 complaint.

Nelson, in her Feb. 21 order, sided with Thrivent, saying that a stay “is not warranted at this time.”

“While the inherent power to manage a court’s docket rests with the court’s discretion, considerations of fairness to the opposing party mandate a presumption in favor of denying a motion to stay,” she explained. “This presumption may be overcome based on proper facts, but the burden of doing so rests with the movant.”

The DOJ argued in its request that a stay should be issued “pending the results of the review directed by the President.”

Earlier this month, President Donald Trump directed the DOL to review the rule.

“Mere speculation about the possibility of administrative action -- especially when compounded by uncertainty regarding what form that action might take -- does not discharge that burden,” Nelson wrote.

“Here, the Court sees nothing in Defendants’ submission to show that a stay is justified, particularly in light of Plaintiff’s opposition to the motion.”

From Legal Newsline: Reach Jessica Karmasek by email at

Want to get notified whenever we write about any of these organizations ?

Sign-up Next time we write about any of these organizations, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

U.S. Department of LaborU.S. Department of JusticeU.S. Chamber of CommerceThrivent Financial