Lone Judge Likely Pushing For DOL Fiduciary Rule Hearing, Lawyer Says

By John Hilton

A judge lobbying for a full hearing is likely holding up a federal court's official order to kill the Department of Labor's fiduciary rule, according to a prominent Washington, D.C., lawyer.

The Fifth Circuit Court of Appeals was expected to issue its mandate to kill the rule officially five weeks ago. The court document had been considered a formality that would be issued a week after the April 30 deadline for appeals.

That week came and went, as did several more weeks. While the court dismissed all appeals for an en banc review -- in which all 15 judges on the court rehear the case -- one of the judges on the court is likely pushing for the full review, said William M. Jay, head of the Litigation Department at Goodwin's Washington office.

"If I am right about what is happening, the active judges of the court will vote on whether to rehear the case," explained Jay, former assistant to the U.S. solicitor general. "Rehearing en banc requires a majority."

Further complicating matters, one of the three judges who ruled on the case retired on May 14 and was replaced by conservative Judge Kurt D. Engelhardt. The retiring judge, Edith Brown Clement, was one of the two judges who decided against the rule.

Longtime Chief Judge Carl E. Stewart dissented. If a judge is pushing for a rehearing, it is likely a judge who did not hear the case, Jay said.

It is not a given that the court will rehear the case. A spokeswoman for the Fifth Circuit declined comment beyond confirming that no mandate has been issued.

"If the court does not rehear the case it is possible that one or more judges will write and file a dissent," Jay said. "The mandate would not issue until that process is completed."

The continued delay in issuing the mandate has perplexed all parties in the case. The American Council of Life Insurers filed a June 6 brief with the Fifth Circuit essentially asking what the delay was all about.

ACLI attorney David W. Ogden described a "palpable uncertainty for significant portions of the insurance and financial services industries -- uncertainty that interferes with long-term planning, that risks generating consumer confusion, and that imposes ongoing compliance costs on regulated entities."

The court has not responded to that brief. Ogden, of the Washington, D.C. law firm WilmerHale, did not return email and phone messages seeking comment.

While not a party to the Fifth Circuit case, Barbara Roper of the Consumer Federation of America has been fighting for stronger investor protection rules for many years. While stressing that she has no inside information, Roper said the judicial-led rehearing is "the only logical explanation" for the delay.

“We believe the case was wrongly decided and deserves a rehearing," she added. "Retirement savers need and deserve the protection of a strong fiduciary rule, regardless of who they turn to for retirement investment advice.”

The industry plaintiffs were consolidated from three lawsuits that were filed in 2016 in U.S. District Court for the Northern District of Texas. While the plaintiffs lost the federal court decision, the Dallas court was chosen specifically because appeals would go to the Fifth Circuit.

The Fifth Circuit, based in New Orleans, is known for its narrow view of government powers of regulation. It heard the case in July 2017 and took eight months to reach its decision.

Writing the majority opinion, Judge Edith H. Jones said the DOL rule "fails the reasonableness test" in extending its ERISA authority to one-time IRA rollovers and similar transactions.

"Through the BIC Exemption, the Rule undertakes to regulate these and myriad other transactions as if there were little difference between them and the activities of ERISA employer-sponsored plan fiduciaries," Jones wrote. "Moreover, that it took DOL forty years to 'discover' its novel interpretation further highlights the Rule’s unreasonableness."

In his dissent, Stewart said, "This regulation 'was adopted prior to the existence of participant-directed 401(k) plans, the widespread use of IRAs, and the now commonplace rollover of plan assets' from Title I plans to IRAs.”

In addition to the ACLI, other plaintiffs include the U.S. Chamber of Commerce, National Association of Insurance and Financial Advisors, the Insured Retirement Institute, and many others.

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.