Kansas judge denies effort to block DOL fiduciary rule

Decision comes a little more than two weeks after a DC district judge also denied a preliminary injunction by an insurance group

Nov 28, 2016 @ 4:26 pm

By Mark Schoeff Jr.

A Kansas federal judge on Monday denied an effort to block a Labor Department financial-advice rule, handing opponents a second consecutive loss.

U.S. District Judge Daniel Crabtree ruled against a preliminary injunction being sought by Market Synergy Group Inc., a Topeka insurance agency that develops fixed indexed annuities and other proprietary insurance products.

Market Synergy argued that the DOL violated regulatory procedures in promulgating the rule, which requires financial advisers to act in the best interests of their clients in retirement accounts.

The firm asserted that the rule would sharply reduce revenue from fixed indexed annuity sales by prohibiting third-party compensation and would drive more than 20,000 independent insurance agents out of the market.

In a 63-page decision, Mr. Crabtree ruled that the firm failed to show that the DOL exceeded its authority or was capricious in its treatment of fixed indexed annuities. He also said that the rule would not cause irreparable harm to the insurance sales model.

“As defendants argue, an injunction will lead to confusion about the law and likely produce unwarranted delay,” Mr. Crabtree wrote in his opinion. “This is not in the public's interest. Any injunction thus will produce a public harm that outweighs any harm that plaintiff may sustain from the rule change.”

The decision comes a little more than two weeks after a Washington district judge also denied a preliminary injunction by an insurance group and granted summary judgment to the DOL and just a few days after a judge in Texas held a hearing on a wider-ranging third lawsuit against the measure.

“This is another great victory for those who support the DOL rule,” said Ron Rhoades, an assistant professor of finance at Western Kentucky University. “This decision will hopefully influence the Texas judge.”

But Erin Sweeney, counsel at Miller & Chevalier in Washington, doubts that the Chief Judge Barbara Lynn of the Northern District of Texas, who is hearing the DOL case, will be moved by the Kansas or Washington decisions.

“It doesn't tie her hands in any way,” Ms. Sweeney said.

The Washington court decision did sway Mr. Crabtree because the 92-page opinion was written by Judge Randolph Moss, an expert in Administrative Procedure Act, according to Ms. Sweeney.

“It seems to me what happened here is one judge following in the footsteps of a fellow Obama administration appointee,” Ms. Sweeney said. “He was sufficiently concerned to be out on his own on this decision. It's hard to take on an APA guy.”

Market Synergy is expected to appeal the decision. A person answering the phone at the firm on Monday afternoon declined to comment and said that a company spokesman was out of the office.

The appeals circuit where the Kansas decision would be heard is more difficult legal terrain for a federal agency than the appeals court in Washington, according to Ms. Sweeney.

“It's a second jarring blow to the industry, but it still has to move up to the circuit to get a split,” she said.

The DOL released the final rule in April. The first implementation deadline is April 10 of next year. It's unclear how the incoming Trump administration will approach the rule — or even the ongoing lawsuits — but the Republican Congress is likely to try to pass legislation to halt it.

The Obama administration asserts that the regulation is required to protect workers and retirees from conflicted financial advice that raises investment fees and erodes retirement savings. The financial industry argues that the rule is too complex and costly and will prevent middle-income investors from getting advice.


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