Labor Secretary Thomas Perez vowed Thursday to “vigorously” defend DOL’s fiduciary rule from the lawsuit filed the same day by financial services trade groups and several Texas groups that seeks to vacate the rule.
Indeed, at least one industry expert maintains that the plaintiffs waited too long to move on their complaint, and that they are headed for a battle with DOL to have the venue moved from U.S. District Court for the Northern District of Texas to Washington.
Eugene Scalia, a partner in Gibson, Dunn & Crutcher’s Washington office, who represents the groups, told reporters on a Thursday morning call that the complaint asks that DOL’s fiduciary rules be “vacated, thrown out by the court” and that DOL be “prevented from enforcing the rules.”
Said Scalia: “We will ask the court to proceed quickly,” given the upcoming April 2017 compliance deadline.
Perez said in a statement the same day, however, that DOL’s rule is “built upon solid statutory and legal foundations, and we will defend it vigorously.” The ”handful of industry groups and lobbyists are suing for the right to put their own financial self-interests ahead of the best interests of their customers.”
DOL has 60 days to respond to the lawsuit.
The nine plaintiffs include the Securities Industry and Financial Markets Association, the Financial Services Institute, the Financial Services Roundtable, the U.S. Chamber of Commerce, the Insured Retirement Institute and four Texas groups, including the Texas Association of Business.
Ken Bentsen, president and CEO of SIFMA, noted on the call that while all of the trade groups represent members nationwide, about 27,000 advisors in Texas are registered with the Financial Industry Regulatory Authority and that Texas ranks third in the U.S. in terms of the number of advisors and fourth in the number of broker-dealers, which “underscores the fact that this is a Main Street issue.”
Scalia, who previously served as DOL’s chief legal officer and is the son of the late Supreme Court Justice Antonin Scalia, agreed, stating that the DOL rule’s impact “is nationwide, but it’s very great in Texas. It’s appropriate that [the lawsuit be filed] in a Main Street jurisdiction; it’s not an inside the Beltway case.”
Scalia added that DOL “will have to decide how they want to move” on the case, which could mean seeking to change its venue, but added, “I don’t know why they’d want to move it to someplace else.”
In separate comments to ThinkAdvisor, Scalia said that during his time as DOL solicitor, “I don’t recall a case where we felt we needed to move” venues.
As to DOL’s 60-day deadline to respond, Scalia said that “We expect to seek a means fairly promptly to be resolved in advance of the [April] compliance deadline.”
But Mercer Bullard, professor of law at the University of Mississippi Law School and founder of Fund Democracy, an advocacy group for mutual fund shareholders, told ThinkAdvisor on Thursday that “the plaintiffs have hurt their cause by delaying” filing a suit until now. ”Why should a court be sympathetic to their request to postpone the effective date when they waited so long to file and then filed where they know there will be a fight over removing the case to DC?”
The groups’ ”actions undermine their argument that postponement is necessary,” Bullard continued. “It seems they’re betting on the court from the country of Texas ruling for them strictly on political grounds.”
Bullard added that “the [fiduciary] issue is national; DOL in is DC, the real plaintiffs are based in DC, the faux Texas plaintiffs have no special Texas-interest.” Also, the parties to the suit are in Washington as are the “people who made” the DOL rule. “This is just blatant forum shopping.”
Scalia, who co-chairs his firm’s Administrative Law and Regulatory Practice Group and is a member of its Labor and Employment Practice Group, said the lawsuit first challenges the “definition and meaning” of the word fiduciary.
“Fiduciary is a very familiar and important word in the legal lexicon,” Scalia said, “and DOL has given it a meaning that is unrecognizable. Our complaint begins with the overbroad definition of fiduciary.”