Acosta is a trained legal scholar.

R. Alexander Acosta, President Donald Trump’s choice to replace Andrew Puzder as the nominee to head the Labor Department, will be asked to hit the ground running when he takes over leadership of the agency, assuming he is confirmed by the Senate.

How Acosta will interpret the authority of the Labor Department remains to be seen, but his first test could come in the economic and legal analysis of the fiduciary rule ordered in a recent presidential memorandum.

Acosta’s confirmation process is expected to be much smoother than that of Puzder, who withdrew his nomination less than 24 hours before his hearing before the Senate Health, Education, Labor, and Pensions committee was scheduled to begin.

A former Assistant Attorney General in the George W. Bush administration, and U.S. Attorney for the Southern District of Florida, Acosta has survived three Senate confirmation hearings for presidentially appointed positions, the first in 2002 when he was appointed to the five-member National Labor Relations Board. He previously clerked for Supreme Court Justice Samuel Alito on the U.S. Court of Appeals for the 3rd Circuit.

That pedigree suggests Acosta will bring a considerable intellect to the Labor Department’s review of Obama-era regulations, says Lawrence Cagney, chair of the Executive Compensation & Employee Benefits Group practice at Debevoise & Plimpton.

“The previous nominee struck me as someone with zero tolerance for the fiduciary rule,” said Cagney. “He was a business person that likely had some experience with wage and hour law, but likely little exposure to fiduciary issues.”

While Acosta may not have direct experience litigating claims under the Employee Retirement Income Security Act, he would clearly bring a more nuanced view than Puzder to the review of the fiduciary rule ordered by Trump, given his depth of experience as a legal scholar and litigator, thinks Cagney.

Legal scholar and litigator

“The difference is that Acosta is a legally trained scholar, and one would have to assume a very smart guy,” he said. “It can be expected he will be much more contemplative and thoughtful in his approach to the rule than the previous nominee.”

That may prove to be good news for proponents of the rule, who don’t want to see it scrapped, and good news for opponents, who would like to see some changes.

Like a lot of ERISA legal specialists, Cagney thinks the best solution is to make the rule more workable, and not to scrap it.

“There are clear benefits to this rule, and financial institutions are not adverse to working with something that improves protections for retirement investors,” said Cagney. “But as it’s written it will invite an inordinate amount of litigation.”

Trump’s memorandum specifically instructs the Labor Department to assess the degree to which the rule will increase litigation.

As head of Debevoise & Plimpton’s benefits practice, Cagney said he’s been working with the firm’s litigation leaders to develop best practices for financial institution clients that reduce litigation risk under the rule to a tolerable level.

“It’s difficult to come up with a path that makes the litigation risk under the rule manageable,” he said. “There is a lot of room for improvement — we can have a rule that protects investors, and gives them remedies if they are abused by advisors, without inviting litigation in every circumstance.”

Prudent advice does not always result in strong investment returns, a reality that Cagney does not believe will deter the plaintiffs’ bar.

“The best investment advisor in the world is going to make good, prudent decisions that don’t always work out,” said Cagney. “As it’s written the rule puts the burden on the advisor to prove they have not acted improperly. They have to prove their recommendation wasn’t influenced by a conflict — that’s a hard, if not impossible, thing to prove.”

Rulings may not shackle Acosta in addressing rule’s private right of action

Judges in Washington, D.C.; Kansas; and Texas federal courts have all upheld the fiduciary rule.

The ruling from Texas may have been the most sweeping, in that it considered the widest range of arguments from a consortium of industry trade groups, including the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association.

In that ruling, Chief District Judge Barbara Lynn addressed the plaintiffs’ claim that the rule will generate a rash of class-action litigation, creating costs that will ultimately be passed on to retirement investors.

“The DOL did not specifically quantify potential class-action litigation costs, but it is not required to do so,” wrote Lynn in her ruling.

Moreover, the Labor Department factored potential litigation costs in its rulemaking, going so far as to craft the Best Interest Contract Exemption “to ensure that only allegations of systemic egregious conduct will be litigated via class actions,” according to Judge Lynn’s decision.

That level of specificity in the decisions upholding the rule will limit the Trump Labor Department in how much it can change it, says Erin Sweeney, an ERISA attorney with Miller & Chevalier.

“The rulings make it much more difficult for the DOL to change course,” said Sweeney. “They all say that the fiduciary rule is consistent with Congress’ intentions when it wrote ERISA.”

Judge Lynn’s ruling also addressed the question of whether the cost of investment services will go up under the rule and whether the rule will restrict access to advice. The Labor Department’s new analysis is to address those questions, according to President Trump’s memorandum.

“It’s an incredibly sweeping ruling, and it’s going to be significantly more difficult to reopen the rule and reach different conclusions than the courts,” said Sweeney. “Proponents of the rule will be waiting in the wings to challenge any changes with Judge Lynn’s decision.”

But Lawrence Cagney says the three decisions, while thorough and well reasoned, will not necessarily limit what changes can be made to the rule.

“The courts were assessing questions of DOL’s authority, and its rulemaking process, and whether or not the agency is entitled to deference in crafting the fiduciary rule,” said Cagney.

“What the courts were not evaluating is whether or not Labor wrote the best possible rule,” he added. “The decisions don’t mean you can’t go back in, re-evaluate the process that led to the rule, and rewrite portions of it to make it better.”

— Related on ThinkAdvisor: