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Saturday, February 22, 2020

Minn. judge issues injunction against DOL’s fiduciary rule, also grants stay

By Jessica Karmasek | Nov 7, 2017


ST. PAUL, Minn. (Legal Newsline) - A Minnesota federal judge has issued a preliminary injunction against the U.S. Department of Labor’s fiduciary rule in a lawsuit filed by a Minneapolis-based organization that provides financial services to Christians.

Judge Susan Richard Nelson for the U.S. District Court for the District of Minnesota, in her order Friday, also granted a stay in the case, filed last year by Thrivent Financial for Lutherans.

Thrivent filed its motion for preliminary injunction in September; the DOL filed its motion for a stay in February and a renewed motion in July, after it was initially denied by Nelson.

The parties also filed cross motions for summary judgment. However, Nelson denied Thrivent’s motion without prejudice; the department’s motion was withdrawn.

“The Court is satisfied that an actual, ongoing controversy exists between the parties,” Nelson wrote in her 21-page order. “Although the Court recognizes the presumption of good faith given to governmental actors when voluntary cessation is involved, the anti-arbitration condition remains in place, the potential actions of two different agencies are implicated, the rulemaking process can be lengthy, and Thrivent requires certainty for purposes of advance planning and legal compliance.”

The DOL, which now concedes that the fiduciary rule’s BIC, or Best Interest Contract, Exemption’s anti-arbitration condition contravenes the Federal Arbitration Act, asserts it will not enforce violations of that condition against Thrivent.

“While DOL acknowledges that its actions in the near future are likely to moot the case, it concedes that the case is not yet moot,” Nelson wrote, pointing to the department’s own filings. “DOL also represents that it is coordinating a non-enforcement policy with the IRS. But it appears that these efforts are ‘ongoing,’ and are neither definite nor complete.”

The judge continued, “DOL further recognizes that enforcement of the Rule does not rest exclusively with the government, and if the applicability date is not delayed as proposed, a retirement investor could assert an ERISA (Employee Retirement Income Security Act) enforcement claim against Thrivent for actions in any period during which the challenged provision applies. Similarly, Plaintiff Thrivent argues that even if DOL’s statements concerning non-enforcement carried legal force, Thrivent would nevertheless remain at risk of non-compliance.”

Thrivent, a Fortune 500 non-profit organization, filed its lawsuit against the DOL in the District of Minnesota in September 2016, arguing the department “exceeded its authority” under the Administrative Procedure Act.

Thrivent contends the rule, which redefines the term fiduciaries, would make it subject to penalties under federal law and would force it to agree contractually with its customers that they could participate in class actions against the organization.

The DOL released its final rule in April 2016. 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.

“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, 2016 complaint.

However, the DOL is working on pushing back the controversial rule’s full implementation.

In August, the department and its new secretary, R. Alexander Acosta, notified the Minnesota federal court that it submitted to the Office of Management and Budget, or OMB, proposed amendments to three exemptions.

The proposed amendments include an “extension of transition period and delay of applicability dates” from Jan. 1, 2018 to July 1, 2019, according to an Aug. 9 filing in the District of Minnesota.

In a notice filed Nov. 2 -- the day before Nelson’s order -- Acosta notified the federal court that, on Nov. 1, the department submitted to the OMB a proposed notice of final amendments to three prohibited transaction exemptions.

“This step provides for interagency review in preparation for publication in the Federal Register,” he wrote.

In April, the department released a measure officially delaying the implementation of the rule and its related exemptions by 60 days, until June 9.

But written disclosure requirements and the full BIC exemption were scheduled for Jan. 1, 2018 implementation.

Later in June, the DOL published a Request for Information, or RFI, related to the rule and whether to delay its full implementation.

“The RFI is an opportunity for the public to provide data and information that may be used to revise the rule and associated exemptions,” the department said in June 29 news release.

The DOL said public input would assist in “determining future actions on the rule and related exemptions.”

Then, in September, the DOL announced a proposal to delay full implementation of its fiduciary rule for 18 months. The OMB approved the proposal delaying the remaining provisions of the rule. 

Thrivent said it is pleased with Nelson’s ruling. The relief from the court will allow it to continue to operate its Member Dispute Resolution Program without being in violation of the DOL’s rule, it said.

“We appreciate the fact that the court recognized the unique structure of Thrivent as a fraternal benefit society, which is owned by its members and operates for the exclusive benefit of our membership,” Thrivent CEO Brad Hewitt said in a statement Tuesday.

“Thrivent supports the overall goal of the fiduciary rule, but took this action to protect and preserve our unique governance processes that serve the best interests of our fraternal benefit society members.”

Paul Johnston, Thrivent’s general counsel and secretary, agreed, noting that Thrivent did not challenge the entirety of the rule, but a narrow provision that would have limited its ability to “quickly and fairly” resolve issues with its members.

“We are pleased the court recognized the close and abiding relationship with and between members of a fraternal benefit society, such as Thrivent Financial, as stated by the U.S. Supreme Court,” Johnston said in a statement.

From Legal Newsline: Reach Jessica Karmasek by email at

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Organizations in this Story

Thrivent Financial for LutheransU.S. Department of LaborU.S. District Court for the District of Minnesota