DOL’s New Stance on Fiduciary Rule at Odds in Thrivent Case

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By Carmen Castro-Pagan

Thrivent Financial for Lutherans stepped up its fight against the fiduciary rule’s anti-arbitration condition that would bar class litigation against financial advisers by citing the Labor Department’s latest court argument ( Thrivent Fin. for Lutherans v. Acosta , D. Minn., No. 0:16-cv-03289, letter to district judge 7/5/17 ).

Thrivent is urging the court to rule in its favor in light of the agency’s July 3 announcement that it will no longer defend the validity of the best-interest-contract exemption’s condition restricting class-litigation waivers as it applies to arbitration agreements, according to a letter filed July 5 in the U.S. District Court for the District of Minnesota.

Last year, Thrivent sued the agency for allegedly exceeding its statutory authority by attempting, with its new fiduciary rule, to force all disputes into federal court rather than allowing for alternative dispute resolution methods. Earlier this year, the court ruled in Thrivent’s favor when it denied the DOL’s request to stay the Thrivent case while the agency acted on President Donald Trump’s order that the rule be reviewed and possibly revised.

Thrivent said in its letter that it was “surprised” by the DOL’s change of position, which was stated in a brief filed in the U.S. Court of Appeals for the Fifth Circuit. The DOL’s position, the letter said, is “entirely consistent with Thrivent’s arguments—and fundamentally irreconcilable” with the agency’s arguments in the case as recently as four weeks ago. The legal position the DOL has taken in the Fifth Circuit “makes clear that the DOL has abandoned the arguments” that it previously made to the court in the Thrivent case, the letter said.

Looking Forward

The department is doing two interesting things: It is asking that the rule be upheld, and it is carving out the best-interest-contract exemption by dropping the anti-arbitration condition, Marcia S. Wagner of the Wagner Law Group told Bloomberg BNA July 6. It looks like the department is considering revising the rule to take that part out, Wagner said.

The department’s change of position came just days after it requested more comments on the rule.

Asked how the DOL’s change in position may change the fiduciary rule, Wagner said that the DOL will likely look at the comments as they come. Taking out the anti-arbitration condition is up in the air, but it is clearly is under consideration, she added.

Steve Hall, legal director at Better Markets, told Bloomberg BNA July 6 that the rule deserves a full review in court on all the issues raised and the group is troubled that the government won’t defend this provision.

It isn’t certain that the court will strike the provision from the rule, Hall said. The court can and should consider the issue and render a decision on the law, he added. “While the government’s position changes the outlook for that provision, we are still hopeful the rule will survive the appeal fully intact,” Hall said.

The DOL is assessing how best to resolve its litigation with Thrivent in light of the change in position and said that it will propose a method of resolution within two weeks, according to a letter filed by the department July 5.

Cozen O’Connor and Greene Espel PLLP represent Thrivent. The Department of Justice, Civil Division, represents the DOL.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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