Industry opponents of the Labor Department's fiduciary rule are using last week's Massachusetts enforcement action to try to speed up an appeals court decision in their lawsuit.
The plaintiffs warned the Fifth Circuit Court of Appeals that the move by Massachusetts Secretary of the Commonwealth William Galvin to cite the DOL regulation in charging Scottrade Inc. with violating the state's securities laws was a sign that the partially implemented rule can raise regulatory and legal costs for financial firms.
"Although Massachusetts's attempt to use the fiduciary rule in this manner lacks merit, it confirms appellants' concern that the portions of the rule that took effect on June 9, 2017, will continue to impose extensive burdens and costs on appellants' members, even while other aspects of the rule have been postponed," wrote Eugene Scalia, a partner at Gibson Dunn and counsel for the U.S. Chamber of Commerce, the lead plaintiff, in a letter last Friday.
"The action also shows that the fiduciary rule is exacerbating the risk of litigation, even absent 'best-interest contracts,'" Mr. Scalia wrote, referring to an enforcement mechanism of the rule that has been delayed. "This enforcement action — which seeks censure, fines and disgorgement, among other other penalties — vividly illustrates the urgent need to vacate the rule."
Opponents and advocates of the regulation have been waiting for months for the Fifth Circuit Court of Appeals in New Orleans to issue its opinion. The court held a hearing last summer.
Kevin Walsh, an attorney with Groom Law Group, said the court may have been waiting for more developments in the DOL reassessment of the rule, which may lead to major changes. Mr. Scalia's letter may be a catalyst for the decision.
"What this filing signals is there is ongoing harm, so a decision is needed," Mr. Walsh said. "The Massachusetts [case] shows that there are real consequences" to the DOL rule.
The case that is being appealed to the Fifth Circuit is the highest-profile suit of several against the DOL rule, because it involves the leading industry opponents to the regulation. In addition to the Chamber, plaintiffs include the Securities Industry and Financial Markets Association, the Financial Services Institute, the American Council of Life Insurers and the Financial Services Roundtable.
Though the plaintiffs are chomping at the bit for a decision, Erin Sweeney, a member at law firm Miller & Chevalier, doubts it will speed up the ruling.
"There is pressure to show the clients you're doing everything you can to move the process forward," Ms. Sweeney said. "Getting a letter from a counsel doesn't reorder a judge's priorities."
Like the person waiting to eat a hamburger because ketchup is stuck in the Heinz bottle, anticipation of the Fifth Circuit's three-judge decision has everyone eager for movement — and wondering about the delay.
"I'm surprised it's taking them this long," Ms. Sweeney said. "Maybe there's some level of disagreement and discussion."