Texas federal trial Judge Barbara M.G. Lynn ruled in favor Wednesday of the Labor Department in the case brought by nine plaintiffs against Labor’s fiduciary rule.
Lynn had promised a ruling by Friday. The nine plaintiffs, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute, sued the DOL over its fiduciary rule in a Texas court.
Related: The DOL rule: A case for the courts
The nine plaintiffs in the Texas case are represented by former Labor Department solicitor Eugene Scalia, who’s now a partner in Gibson, Dunn & Crutcher’s Washington office and a son of deceased Supreme Court Justice Antonin Scalia.
In a joint statement, the co-plaintiffs stated: “We continue to believe that the Department of Labor exceeded its authority, and we will pursue all of our available options to see that this rule is rescinded.” President Donald Trump’s recent directive to the Department to review the rule, is “reflecting well-founded, ongoing and significant concerns about the rule, is a welcome development.”
The American Council of Life Insurers also released a statement about the decision. Executive Vice President and General Counsel Gary Hughes said the ACLI is, “disappointed with the decision from the U.S. District Court, Northern District of Texas on our joint legal challenge with the National Association of Insurance and Financial Advisors (NAIFA) to the U.S. Department of Labor’s fiduciary regulation.”
The statement continued: “ACLI and NAIFA continue to believe that the regulation is arbitrary and capricious, contrary to law and violates the First Amendment. We support responsible and balanced regulations that protect the interests of retirement consumers. But the regulation is neither reasonable nor balanced. It will harm the very people it is meant to help – retirement savers who now, more than ever, need access to the guaranteed lifetime income products (personal pensions) offered by ACLI and NAIFA members. It is essential that all Americans receive the financial advice they want and need.”
Some will view Judge Barbara M.G. Lynn’s decision of a vindication of former Labor Secretary Tom Perez, seen here. (Photo: AP Images)
More from the judge
Said Lynn in her ruling: “In contrast to the situations in the cases cited by Plaintiffs, in [the Employee Retirement Income Security Act] Congress did speak clearly, and assigned the DOL the power to regulate a significant portion of the American economy, which the DOL has done since the statute was enacted.”
Congress, Lynn said, “gave the DOL broad discretion to use its expertise and to weigh policy concerns when deciding how best to protect retirement investors from conflicted transactions.”
Lynn’s opinion “is a complete vindication of [former Labor Secretary] Tom Perez, Phyllis Borzi, and the rest of Obama’s Department of Labor,” said Tom Clark, of counsel with The Wagner Law Group, in a comment Wednesday.
“Even with the attempt to find a favorable venue in the Northern District of Texas, every district court to address these issues [has] now ruled in favor of positions taken by the previous administration. That being said, the current administration and the Department of Labor still have the ability to seek a stay in the applicability of the rule and to ultimately modify or repeal the rule,” Clark pointed out.
While Lynn’s ruling “might make that task harder and more politically distasteful, the new Department of Labor under Trump is still in the driver’s seat. However, I think it is fair to expect that opinions such as this one will embolden supporters of the fiduciary rule who will ultimately seek to challenge the new Department of Labor in court. It seems the situation will get messier before the industry has reliable clarity.”
Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles, agreed that even with Lynn’s ruling, “It is still possible that the Trump DOL will take a different political position and delay and modify or delay and kill the fiduciary rule. But, this is one less reason that they can use for that purpose.”
Instead, DOL “will need to conclude that the fiduciary rule limits access of plans and IRA owners to needed investment advice and/or increases the cost of that advice by amounts that exceed any offsetting benefits of the rule,” Reish adds. “At this point, I think that there is distinct possibility that the DOL will make those findings.”