States trying to save DOL fiduciary rule appeal rejection of effort to intervene

California, New York, Oregon ask for rehearing by full 5th Circuit Court of Appeals.
MAY 17, 2018

This story has been updated with new material. Another attempt to appeal a federal court ruling striking down the Labor Department's fiduciary rule is keeping the measure viable for now, but it still faces long odds of defying death. California, New York and Oregon filed a motion late Wednesday in the 5th Circuit Court of Appeals, seeking a rehearing of a May 2 ruling ruling by a three-judge panel that rejected their request to enter the case as defendants. The Department of Justice, acting on behalf of the DOL, failed to appeal the 5th Circuit decision to strike down the rule on April 30, the deadline for filing the motion. "The rule is not dead, and there's still an opportunity to right this wrong," said Micah Hauptman, financial services counsel at the Consumer Federation of America. The states, along with the older-Americans interest group AARP, are seeking to intervene in a lawsuit against the DOL rule brought by financial industry opponents of the measure. The would-be defenders of the regulation want to join the case in order to get a rehearing before the full 5th Circuit of a March 15 split decision that vacated the DOL regulation. Both the March 15 decision to strike down the DOL rule and the May 2 decision to deny intervenor status to the states came after 2-1 votes by the same three judge panel. Fifth Circuit Chief Judge Carl E. Stewart dissented each time. The states' motion asks the court's clerk to permit them to seek a review of their request for intervenor status by the full 5th Circuit, if the three-judge panel declines to reconsider it. "Two judges shouldn't be allowed to effectively insulate their decision from further appellate scrutiny, and I'm afraid that's what they're trying to do," Mr. Hauptman said. "Rehearing by the entire 5th Circuit is warranted." The industry plaintiffs — U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute, and Securities Industry and Financial Markets Association — urged the court to stick to its guns. "The 5th Circuit has already denied the States' motion for leave to intervene, and any request for rehearing is without merit," the plaintiffs said in a statement. The states have a difficult case to make, according to Andrew Oringer, a partner at the law firm Dechert. First, they have to convince the 5th Circuit to let them intervene, then they have to persuade the full court to overturn the March 15 decision. They're trying to do so, in part, by arguing that they'll take a tax-revenue hit if the DOL rule dies. "It is an extraordinarily hard fight to win," Mr. Oringer said. "That's not the kind of direct impact you tend to see [in] successful intervention motions." The 5th Circuit was supposed to issue a mandate by May 7, making its March 15 decision effective. It has not yet done so. In the meantime, the DOL released a temporary enforcement policy regarding the partially implemented fiduciary rule, which requires brokers to act in the best interests of their clients in retirement accounts. On March 15, the 5th Circuit struck down the rule, arguing that the DOL exceeded its statutory authority in promulgating the regulation. It was the first loss for the DOL rule after several wins at the district and appeals level throughout the country. "It's extremely troubling that one decision could have such an outsize impact, especially when it's an outlier," Mr. Hauptman said. Mr. Oringer says the three judges made the right ruling on March 15. "It was an extraordinarily well-reasoned decision," he said. While the fate of the DOL rule is being sorted out, the Securities and Exchange Commission released its own investment-advice-reform package in mid-April.

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