Fiduciary-Rule Litigation Moves to Court of Public Opinion

Last week Labor Secretary Acosta chose a Wall Street Journal op-ed to announce DOL's decision not to delay the "fiduciary rule" past the once-extended June 9 effective date. See A. Acosta, Deregulators Must Follow the Law, so Regulators Will Too¸ Wall St. J. at A19 (May 23, 2017); our blog, here: blogs/securities-litigation/2017/05/25/dol-wont-delay-fiduciary-rule-past-june-9/

This week, opponents answered, with the lead counsel for the industry's litigation challenge summarizing those arguments on the same op-ed page. See E. Scalia, Godzilla (the Fiduciary Rule) Ate the Rule of Law, Wall St. J. at A17 (June 1, 2017).

Scalia's article calls the Rule "a regulatory Godzilla - an extraordinary example of disregard for limitations imposed by Congress and the Constitution." The article summarizes some of the main arguments in the case.

First, the challengers argue that Labor brashly exceeded its statutory mandate, backing indirectly into what it can't do directly (DOL can't regulate IRAs) by essentially prohibiting compensated advice through an over-broad definition of "fiduciary" coupled with a series of de-regulatory exemptions and exceptions conditioned on compliance with what otherwise would be regulatory requirements. That arguably runs afoul of Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014).

Second, the "BIC" (or best-interest contract) exemption depends upon a fiduciary's use of a BIC, but requires that the BIC provide a private right of action, including class actions. That, challengers argue, contravenes the Supreme Court's holding that only Congress - not regulatory agencies - can create private rights of action. See Alexander v. Sandoval, 532 U.S. 275 (2001).

Third, the BIC exemption forbids that contract to require arbitration of potential class-action claims. That arguably runs afoul of Concepcion, and more lately, of Kindred Nursing Centers L.P. v. Clark, No.16-32 (U.S. Slip Op. May 15, 2017).

So far, though, neither those arguments nor any of the several challenges have succeeded in the District Courts. As Scalia points out, it will be interesting to see how Secretary Acosta and the Trump Administration approach their appellate briefs "defending" the Rule next month.

The battle is joined - now in the Court of public opinion, as well as the Courts of Appeals.

Thomas K. Potter, III ( is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.

Posted in: Fiduciary Rule
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