Discussion In DOL Hearing Centers On Right To Sue

By John Hilton

DALLAS -- Judge Barbara M.G. Lynn tried to establish what plaintiffs mean by claiming the Department of Labor doesn't have the right to establish a "private cause of action" with its fiduciary rule.

Lynn presided over the third hearing this morning in a series of lawsuits brought by opponents of the DOL rule, which establishes a fiduciary standard of care for anyone working with retirement accounts.

The U.S. Chamber of Commerce and the American Council of Life Insurers were the lead plaintiffs in the Dallas lawsuit, which was consolidated from three complaints filed in June.

Opponents claim only Congress can establish a private right of action, or the right for people to sue, as individuals or as a class, under an existing law. In a 2001 Supreme Court decision, Alexander v. Sandoval, the high court wrote: “like substantive federal law itself, private rights of action to enforce federal law must be created by Congress.” That case is cited in the lawsuits brought against the DOL.

The DOL denies that the rule “creates” a new private right of action. The case hinges on how the courts view the rule’s Best Interest Contract Exemption, which enables advisors to receive commission-based compensation that the rule otherwise prohibits as long as they adhere to rigorous disclosure standards and sign a contract with clients.

Calling it a "complicated case," Lynn conceded that she was "having a hard time" deciphering the issue. Twice, she attempted to get plaintiffs' attorneys to concede that the department isn't "literally" creating a private cause of action, but theoretically doing so by making it hard for advisors to do business otherwise.

Eugene Scalia, attorney for the chamber, said the plaintiffs were claiming both.

"The intentionality of what they've done is undeniable," he said.

The speakers continually returned to the ruling in the first court case against the DOL rule. That ruling was issued earlier this month by Judge Randolph D. Moss in District of Columbia District Court.

Moss sided with the DOL in rejecting the National Association for Fixed Annuities' request for a preliminary injunction. That decision was not surprising as Moss's tough questioning of the plaintiff's attorneys was widely reported.

Lynn, who kept the courtroom mood light, recognized the multiple reporters in the room and warned all that her questions "are only questions."

"You'll know what I think when I issue my decision," she added.

The DOL was represented by Phyllis Borzi, assistant secretary for Employee Benefits Security. She declined comment following the four-hour hearing, stating only that the proceedings were "very interesting."

Borzi, considered the prime architect behind the fiduciary rule, also offered no opinion on the possibility that President-elect Donald Trump's administration could wipe out the rule with help from an all-Republican Congress.

"I'm not going to speculate on that," she said. "We have 60-odd days yet to work."

Lynn added that she has read Judge Moss's 92-page decision and that "my goal is to write something shorter."

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.