Labor Secretary Thomas Perez has vowed to "vigorously" defend the department's rule amending the definition of fiduciary on retirement advice against the mounting lawsuits that were lobbed against the rule in June.
A total of five lawsuits had been filed by press time. Nine plaintiffs filed suit in U.S. District Court for the Northern District of Texas on June 2. They were the Securities Industry and Financial Markets Association, the Financial Services Institute, the Financial Services Roundtable, the U.S. Chamber of Commerce, the Insured Retirement Institute and four Texas groups, including the Texas Association of Business.
The American Council of Life Insurers and the National Association of Insurance and Financial Advisors said they "reluctantly" filed suit in the same Northern Texas District, while the annuity industry was quick to follow with three more lawsuits in the following days.
[Editor's Note: On June 17, the DOL filed a motion to consolidate the three Texas-based lawsuits because they "challenge the same agency rulemaking and present substantially the same legal issues." On June 20, the plaintiffs agreed to consolidation, but a judge must grant it.]
The National Association for Fixed Annuities filed suit in U.S. District Court for the District of Columbia and a hearing on that case has been set for Aug. 25.
The lawsuit seeks a preliminary injunction to stay DOL's rule amending the definition of fiduciary under ERISA, which is currently scheduled to become operational in April 2017.
The fourth and fifth legal challenges to the rule were filed by the Indexed Annuity Leadership Council and insurer Market Synergy, based in Kansas. IALC, which is composed of life insurers, filed its lawsuit against DOL in the U.S. District Court for the Northern District of Texas, while Market Synergy filed in the U.S. District Court for the District of Kansas.
Just as the lawsuits were being filed, President Barack Obama followed through with his promise to veto resolutions under the Congressional Review Act passed by the House and Senate to kill DOL's rule.
Too Late? Forum Shopping?
At least one industry expert maintains that the nine heavyweight plaintiffs represented by the DOL's former solicitor, Eugene Scalia, waited too long to move on their complaint, and that they are headed for a battle with DOL to have the venue moved from U.S. District Court for the Northern District of Texas to Washington.
Scalia, a partner in Gibson, Dunn & Crutcher's Washington office, who's the son of the late Supreme Court Justice Antonin Scalia, told IA that during his time as DOL solicitor, "I don't recall a case where we felt we needed to move" venues.
Scalia added that "we expect to seek a means fairly promptly to be resolved in advance of the [April] compliance deadline."
The eight-count suit asks that DOL's fiduciary rules be "thrown out by the court" and that DOL be "prevented from enforcing the rules," Scalia said on a separate call with reporters.
Why Texas? Scalia stated on the call with reporters that the DOL rule's impact "is nationwide, but it's very great in Texas. It's appropriate that [the lawsuit be filed] in a Main Street jurisdiction; it's not an inside-the-Beltway case."
Ken Bentsen, president and CEO of SIFMA, agreed on the call that while all of the trade groups represent members nationwide, about 27,000 advisors in Texas are registered with FINRA and that Texas ranks third in the U.S. in terms of the number of advisors and fourth in the number of broker-dealers, which "underscores the fact that this is a Main Street issue."
But Mercer Bullard, professor of law at the University of Mississippi Law School and founder of Fund Democracy, an advocacy group for mutual fund shareholders, told IA that "the plaintiffs have hurt their cause by delaying" filing suit until now. "Why should a court be sympathetic to their request to postpone the effective date when they waited so long to file and then filed where they know there will be a fight over removing the case to D.C.?"