DOL fiduciary rule on brink of death as key deadline passes

The Department of Labor fiduciary rule is teetering on the brink of death after the Justice Department, which was defending the rule in court, appears to have let a key deadline pass to keep the case alive.

On March 15, the 5th Circuit Court of Appeals struck down the DOL fiduciary rule, which raises investment advice standards in retirement accounts, in a split 2-1 decision. The Department of Justice had until Wednesday to appeal to the Supreme Court for a hearing.

A source with knowledge of the legal proceedings confirmed that the DOJ didn’t petition the Supreme Court. The plaintiffs’ attorney — Eugene Scalia, of the law firm Gibson Dunn & Crutcher — didn’t immediately return a call seeking comment. A DOJ spokesperson also didn’t return calls.

Effectively, that means the Trump administration is happy to let the Obama-era rule die in court. That may not be a surprise — the Justice Department also had the option to ask the full appellate court for a rehearing by April 30, but didn’t do so.

Three states and AARP, which represents the interests of older Americans, tried to intervene in the case to defend the fiduciary rule, but the court denied their petitions.

That left an appeal to the Supreme Court as one of the last bastions of hope for proponents of the rule.

The regulation isn’t dead just yet, because the 5th Circuit hasn’t issued a mandate making its March 15 decision effective. That mandate will officially strip the fiduciary rule from the books.

Though there is no hard-and-fast date by which the 5th Circuit has to issue the mandate, court watchers expected it by May 7, given the typical rules of appellate procedure.

That leaves many questioning: What’s the hold up?

It’s impossible to know for sure, legal experts say. A court clerk in the 5th Circuit couldn’t comment on the timing of a mandate.

One popular theory is that the 5th Circuit judges were waiting to see if the Justice Department would appeal to the Supreme Court. The answer may also be as simple as there being administrative delays, experts say.

“The most likely thing is they’re just taking their time,” said Kevin Walsh, an attorney at Groom Law Group.

Another theory, though remote, is that one of the 15 active judges in the 5th Circuit is seeking a rehearing of the case. If one judge requests a poll and a majority of active judges decides to rehear the case, that route could come to pass, Mr. Walsh said.

“It’s rare that that happens,” he said. “At the same time, we’re now past June 13, so outlandish theories carry a little more weight than they would have on May 8.”

If the court ultimately issues a mandate taking the regulation off the books, rules would revert to the status quo prior to June 2017, when the first of two phases of the fiduciary rule took effect. The rule significantly broadened the scope of activity leading brokers to be considered fiduciaries for their investment recommendations to clients.

“I think we just have to be a bit patient,” George Michael Gerstein, an attorney at Stradley Ronon Stevens & Young, said of the 5th Circuit mandate. “It’s probably a fool’s errand to read too much into it at this point in time.”