Kansas Judge Rejects DOL Rule Injunction

By John Hilton

A Kansas judge sided with the Department of Labor in the second court decision against plaintiffs challenging the controversial fiduciary rule.

Judge Daniel Crabtree, an Obama appointee, issued a 63-page decision Monday rejecting plaintiff Market Synergy Group’s request for a preliminary injunction stopping the rule.

MSG did not meet the four-part standard needed to win an injunction, the judge wrote. Injunction requests historically are difficult to win, but Crabtree subjected government attorneys to tough questioning during the Sept. 21 hearing.

That led some to suggest he favored the plaintiff’s case.

“Any injunction thus will produce a public harm that outweighs any harm that plaintiff may sustain from the rule change,” Crabtree wrote in his ruling. “Congress authorized the DOL to evaluate these competing interests and it has concluded that significant public interests favor the proposed regulatory changes. As already explained, evidence in the administrative record supports the DOL’s determination and the court finds no basis for contradicting those findings.”

Fair Comment Period?

MSG took a nuanced stand with its request for an injunction, citing irreparable harm if fixed indexed annuity sales require a Best Interest Contract Exemption.

Under the DOL's preliminary rule, FIAs were placed under the Prohibited Transaction Exemption 84-24. When its final rule was published in April, FIAs surprisingly turned up under the more stringent BICE.

During the hearing, Crabtree was skeptical on the late change in the treatment of FIAs. MSG contended the industry was denied a chance to provide input on the change during the public comment period.

“Because the Department never indicated that it might view [FIAs] as dissimilar from other fixed annuities or discussed [FIAs] in its notice, nobody submitted a comment on that issue,” wrote J. Michael Vaughan of Walters Bender Strohbehn & Vaughan, an attorney for MSG.

The DOL asked the court to invoke the doctrine of “harmless error,” which forgives an agency’s notice failure as long as public comments on a rulemaking actually were considered by the agency and the public was not prejudiced by the notice failure.

Since the hearing, President-elect Donald Trump won a surprising election night victory, giving Republicans control of the executive branch and both houses of Congress. Trump and GOP leaders are eager to cripple Obama administration regulations, giving opponents perhaps a stronger avenue to stop the DOL rule.

DC Judge Rules

On Nov. 4, Judge Randolph D. Moss of District of Columbia District Court denied a request by the National Association for Fixed Annuities for a preliminary injunction and granted a summary judgment to the Department of Labor.

NAFA quickly appealed and requested two things: an expedited ruling and an injunction delaying the rule’s April 10, 2017, effective date. Moss granted the former motion, but left the date of compliance untouched.

The third of the original lawsuits was heard Nov. 17 in a Dallas federal court, a consolidated case led by the U.S. Chamber of Commerce.

A fourth case – Thrivent Financial vs. Department of Labor – takes a different route in challenging the DOL’s class-action provision. It will be heard March 2 in St. Paul, Minn.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.