So far, all's quiet on the court front when it comes to the recently finalized Labor Department rule to raise investment advice standards for retirement accounts.
Three groups that might file a lawsuit against the rule — the Insured Retirement Institute, the American Council of Life Insurers and the U.S. Chamber of Commerce — indicated Monday they're still reviewing the 1,023-page regulation and haven't made a decision on whether to take legal action.
“We are reviewing our legal options with our outside counsel, Wilmer Hale,” Jack Dolan, spokesman for the American Council of Life Insurers, wrote in an email. “No decisions have been made at this point.”
The IRI and Chamber also said they're still wading through the rule, which was released on April 6, and have not yet made decisions on what to do next.
Like the endless speculation about this week's NFL draft, it's never too early to prognosticate about how a lawsuit against the DOL rule might look.
One place to turn for the lawsuit playbook is a July 20 comment letter filed by Eugene Scalia, a partner at Gibson Dunn & Crutcher and the son of the late Supreme Court Justice Antonin Scalia.
Eugene Scalia has made a name for himself — and has essentially established a business line — as a lawyer who successfully gets courts to stop financial regulations. One of his highest-profile victories occurred in 2011, when he was able to get the D.C. Circuit Court of Appeals to strike down the Securities and Exchange Commission's proxy access rule.
In his comment letter, Mr. Scalia cited two reasons why the DOL rule — which would require financial advisers to 401(k) and individual retirement accounts to act in their clients' best interests — is “legally flawed.”
He said the agency's expanded definition of who is a fiduciary “is vastly overbroad and impermissible.” Under the DOL rule, the term includes broker-dealers selling products. That relationship, Mr. Scalia argues, is based on a single transaction that cannot be construed as ongoing investment advice subject to a fiduciary standard. He also notes that the Investment Advisers Act of 1940 excludes broker-dealers from the definition of investment adviser.
Mr. Scalia argues the DOL lacks authority to promulgate a rule that affects broker-dealers. He asserts that the DOL cannot “front-run” the Securities and Exchange Commission “by crafting its own new standards and enforcement program” for fiduciary duty for investment advice.
He also asserts the DOL doesn't have authority over IRAs.
“In short, DOL is the regulator of neither the IRA market in particular nor the financial industry in general, and it cannot regulate through 'exemption' matters that are beyond its authority to regulate affirmatively,” Mr. Scalia wrote.
In an appearance before the Senate Homeland Security and Government Affairs Committee last week, Bradford P. Campbell, an attorney at Drinker Biddle & Reath, brought up an argument that Mr. Scalia also made in his letter: Only Congress has the authority to subject IRAs to federal retirement law.
“The Labor Department foists onto advisers a standard of care and a legal liability Congress affirmatively chose not to impose,” Mr. Campbell, a former assistant labor secretary for the Employee Benefits Security Administration, wrote in his prepared testimony. “The issue is that this matter is something Congress previously addressed, and changing it should be a congressional decision, not legislation-by-rulemaking.”
Mr. Campbell also said the DOL made a mistake in administrative procedure by not allowing another comment period after the final rule was released.
Labor Secretary Thomas Perez has expressed confidence that the agency has produced a rule that will withstand legal and legislative attacks.
We should find out soon whether he's right.