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Compliance August 31, 2016
Texas Judge Rejects Most Support Briefs in DOL Fiduciary Litigation
Just two out of an increasingly large pile of amicus briefs
filed in relation to litigation seeking to halt the new DOL fiduciary rule will
be considered—both of them ostensibly pro-DOL in their argumentation.
Reported by John Manganaro
The judge presiding over industry challenges filed against the Department of Labor (DOL) fiduciary rule will only consider “friend of the court” or “amicus” briefs filed by the Financial Planning Coalition (FPC) and the American Association for Justice (AAJ).
In a short declaration explaining her decision, District Judge Barbara M.G. Lynn notes these briefs, unlike those that will not be considered, actually contain novel arguments compared with those presented by the plaintiffs and defendants. Her decision regarding the FPC brief in particular also highlights the fact that the FPC has a unique perspective to weigh in, since it is “the only filing party representative of financial professionals in the United States already operating under a fiduciary standard.”
“The court has discretion to consider amicus briefing where the proffered information is timely and useful or otherwise necessary to the administration of justice,” Judge Lynn writes. “In this case, both sides are represented by sophisticated counsel, and the court has granted generous page allocations for briefing. The court determines that Financial Planning Coalition’s motion should be granted because its proposed brief provides a unique perspective. The coalition is the lone amicus representative of financial professionals in the United States already operating under a fiduciary standard, and is therefore able to provide a practical perspective different from that of the parties. Further, Coalition’s brief does not repeat arguments made by either party.”
The FPC brief, it’s safe to say, is staunchly pro-DOL and pro-fiduciary. The brief centers around three critical points of argument. First, the coalition argues, investors currently suffer from a lack of complete, truthful disclosures, and this is having a measurable negative effect on retirement outcomes. Second, “empirical research and the coalition’s own practical experience confirm that middle income investors will retain ready access to professional financial advice under a fiduciary standard of conduct.” And finally, based on CFP professionals’ experience under internal standards similar to those required by the Best Interest Contract Exemption, the coalition argues the rule provides “a workable solution to allow for advisers to receive transaction-based compensation while providing advice that is in the best interests of the client.”
Judge Lynn goes on to explain that American Association for Justice’s motion should also be granted full consideration, “because AAJ’s brief focuses on a narrow legal issue related to the Federal Arbitration Act and does not repeat arguments made by other parties.”
While this brief is certainly more narrowly focused than others, it can also be considered favorable to the DOL’s arguments, with AAJ suggesting the fiduciary rule’s class-action provision “is a valid exercise of the department’s authority that does not conflict with the Federal Arbitration Act.”
“DOL acted well within its statutory authority when it conditioned an exemption on the availability of class actions,” AAJ states. Further, according to AAJ’s analysis, the rule is “fully consistent with the Federal Arbitration Act … The rule does not preclude the enforcement of any arbitration agreements … and covers only those who choose to invoke an exemption … The rule can—and therefore must—be harmonized with the Federal Arbitration Act’s policies.”
Judge Lynn concludes that “no amici will be able to present oral argument at the hearing set for November 17, 2016.” The full text of her decision is here.