Texas court stays DOL fiduciary rule

By John Forcucci

A Texas judge today issued a preliminary injunction to freeze the Department of Labor Retirement Security Rule, its latest attempt to expand fiduciary duty to insurance agents.

The ruling reads as follows:

"The Court grants Plaintiffs’ motion. As explained below, Plaintiffs are likely to succeed on the merits of their claim because the 2024 Fiduciary Rule conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in one-time recommendations to roll over assets from an ERISA plan to an IRA. DOL’s related amendments to Prohibited Transaction Exemption 84-24 are also unreasonable and arbitrary and capricious.

"For its part, DOL attempts to reconcile the Rule to Chamber but fails," stated the ruling. "Ultimately, DOL contends that Chamber is wrong and unduly limits the agency’s authority. But that is an argument for the en banc Fifth Circuit or the Supreme Court. The balance of the factors necessary to issue a stay, moreover, weigh in Plaintiffs’ favor here.

"Accordingly, the Court ORDERS that the effective date of the 2024 Fiduciary Rule and amended PTE 84-24 is STAYED until further order of the Court."

Notably, Judge Jeremy D. Kernodle's ruling does not mention anything about a "party restrictive" injunction limited to agents only. He had questioned how to structure an injunction during oral arguments Tuesday.

Representing the plaintiffs during that hearing, attorney Don Colleluori of Figari & Davenport conceded that his clients were focused on insurance agents. A second lawsuit, filed by several trade associations in another Texas federal court, also challenges other aspects of the rule pertaining to advisors.

Still, Colleluori argued for a blanket injunction for all, citing the injunction granted by the Court of Appeals for the Fifth Circuit in the Career Colleges & Schools of Texas v. U.S. Department of Education.

Career Colleges sued the Department of Education over its 2022 "borrower defense" statute. The Fifth Circuit reversed a lower-court decision in April 2024. In vacating the law, the court determined that "it does not need to be party restrictive," Colleluori explained, postponing enforcement of the rule against any institution that receives federal funds.

"There are good reasons why in this case, it should be universal," Colleluori said. "Restricting it to some parties and not others creates this patchwork that will just lead to further confusion about how the rule can or can't be applied to whom.”

Today's ruling included the following statement:

"The Rule is not DOL’s first attempt to expand the meaning of fiduciary under ERISA. The Fifth Circuit vacated an earlier, similar rule because it “conflict[ed] with the plain text of [ERISA],” was “inconsistent with the entirety of ERISA’s ‘fiduciary’ definition,” and unreasonably treated numerous financial services providers “in tandem with ERISA employer-sponsored plan fiduciaries.”

"The 2024 Fiduciary Rule suffers from many of the same problems. Plaintiffs
are insurance agents who sell annuities and other products to clients rolling over
their retirement investments from employer-provided plans ... (such as 401(k)s) into IRAs.

"They argue that the 2024 Rule conflicts with ERISA by imposing ERISA-fiduciary status on “any insurance agent who merely complies with state insurance laws when dealing with an ERISA plan member or owner of an [IRA].”

"And complying with the Rule while this lawsuit is pending, they argue, will subject them to “significant compliance burdens, . . . potential liability under ERISA, and potential enforcement actions by DOL.” Id. at 11. Plaintiffs therefore seek a stay of the Rule’s September 23, 2024, effective date, or alternatively, a preliminary injunction enjoining DOL’s enforcement of the Rule while this case proceeds."

Colleluori represents the Federation of Americans for Consumer Choice, which filed its lawsuit May 2. FACC asked Kernodle last month to issue a ruling by July 26 at the latest.

Representing the government, attorney Alexander Ely from the Department of Justice sought to save as much of the rule as possible if an injunction is the decision.

The DOL Retirement Security Rule was published April 25 in the Federal Register. It extends a fiduciary standard of care to most annuity transactions. FACC is joined by several independent insurance agents in the lawsuit filed in the Eastern District of Texas.

InsuranceNewsNet Senior Editor John Hilton contributed to this report.