Judge Randolph D. Moss denied a motion for a preliminary injunction today by the National Association for Fixed Annuities in its lawsuit to stop the Department of Labor fiduciary rule.
As part of the ruling in District of Columbia District Court, Moss granted the DOL request for summary judgement.
Moss presided over an August 25 hearing in which he challenged NAFA attorney Philip Bartz with lengthy questioning. Bartz could not be reached for comment, but analysts have said an appeal is likely.
The judge delivered a 92-page ruling that meticulously addresses the six claims raised by the plaintiffs. Sources connected with the case have said they expected Moss to deliver a carefully thought-out ruling that could survive an appeal.
DOL Acted Within Law
In particular, Moss address three key claims. First, that the DOL acted "arbitrary and capricious" with its decision to add fixed indexed annuities into the more restrictive Best Interest Contract Exemption (BICE). The move was made in the published version of the rule, a change made after the DOL had concluded its comment period.
Also, that the DOL unlawfully created a "private right of action" and that its mandated "reasonable compensation" is void for "vagueness under the Due Process Clause of the Constitution."
On the first point, Moss rejected NAFA's claim that the DOL rule treats FIAs as securities. Of the claim that opponents were denied the opportunity to comment on the final decision to move FIAs, the judge disagreed.
The Administrative Procedure Act requires that a notice of proposed rulemaking “provide sufficient factual detail and rationale for the rule to permit interested parties to comment meaningfully.”
“The final rule, however, ‘need not be the one proposed' in the notice of proposed rulemaking," Moss wrote. "Rather, it is enough that the final rule constitute a 'logical outgrowth' of the notice."
The judge also rejected NAFA's claim that the rule creates a private litigation right.
"Rather, any action brought to enforce the terms of the written contract would be brought under state law, and, as both parties acknowledged at oral argument, state law would ultimately control the enforceability of any of the required contractual terms," Moss wrote.
DOL is merely extending rights that already exist under state law, he added.
"Even prior to adoption of the BIC Exemption, financial institutions selling annuities already entered into contracts with their customers and, at least with respect to annuities held in IRAs, they were already subject to suit for breaches of those contracts," Moss wrote. "The BIC Exemption does not change any of this but only requires financial institutions to include a number of specific terms in their contracts if they want to qualify for the exemption."
Vagueness Test Fails
On the reasonable compensation issue, Moss cited Grayned v. City of Rockford: A law is void for vagueness if it fails to provide a “person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly.”
The judge cited several other cases as well and concluded that the DOL's "reasonable compensation" standard satisfies the law.
"The concept of 'reasonable compensation' is a common one that appears throughout the U.S. Code," Moss added, citing the National Flood Insurance Program as one example.
The NAFA case is one of four lawsuits opposing the DOL rule.
The third and final of the original lawsuits will be heard Nov. 17 in a Dallas federal court, a consolidated case led by the U.S. Chamber of Commerce. The second lawsuit, filed by Market Synergy Group, was heard Sept. 21 in a U.S. District Court in Kansas.
All three lawsuits make similar claims that the DOL was “arbitrary and capricious” and overstepped its authority with the fiduciary rule.
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 firstname.lastname@example.org.
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