Nov. 28 — The Department of Labor’s fiduciary rule withstood another round of judicial scrutiny when a federal judge in Kansas refused to block the rule from being enforced ( Mkt. Synergy Grp., Inc. v. DOL , 2016 BL 393632, D. Kan., No. 5:16-cv-04083-DDC-KGS, 11/28/16 ).
In declining to issue a preliminary injunction, the judge reasoned that Kansas-based insurance company Market Synergy Group was unlikely to prove in court that the DOL used an improper process in designing the rule, which is aimed at reducing the allegedly conflicted investment advice given to retirement savers.
Six pending lawsuits challenge the fiduciary rule under a variety of legal theories, and this Nov. 28 decision marks the second time a court has refused to block the rule. Earlier this month, a federal judge in Washington, D.C., upheld all challenged aspects of the rule in a lawsuit brought by the National Association for Fixed Annuities. That decision is on appeal in the U.S. Court of Appeals for the D.C. Circuit.
Erin M. Sweeney, an employee benefits attorney and of counsel with Miller & Chevalier in Washington, called this latest ruling “a second jarring blow” to the financial industry representatives who challenged the rule.
Sweeney told Bloomberg BNA that by denying Market Synergy’s request for a preliminary injunction, the judge also may have carved a “steeper path” toward a circuit split that ultimately could culminate in a U.S. Supreme Court decision on the fiduciary rule.
The next word on the rule is likely to come from a Texas-based federal judge appointed by former President Bill Clinton, who is hearing three of the lawsuits challenging the rule in a consolidated action. Another lawsuit is pending in a Minnesota federal court.
Unlike most of the fiduciary rule lawsuits, which challenge seemingly every aspect of the rule and the DOL’s actions in promulgating it, Market Synergy’s lawsuit focused more narrowly on how the department decided midway through the rulemaking process to regulate fixed indexed annuities more aggressively than fixed rate annuities. While the latter annuity provides a guaranteed rate of return, the former generally provides a variable rate that is guaranteed to stay above zero.
Market Synergy claimed that the DOL’s change of heart on fixed indexed annuities violated the Administrative Procedure Act, because the agency didn’t give industry players proper notice or the ability to comment on the change.
In denying Market Synergy’s request for an injunction, Judge Daniel D. Crabtree of the U.S. District Court for the District of Kansas upheld the adequacy of the DOL’s rulemaking process and, in particular, the notice given by the department of the potential treatment of fixed indexed annuities.
The DOL rule was supported by a “reasoned explanation” that appropriately considered the rule’s economic effect on independent insurance agents, Crabtree said.
“The DOL recognized the effects that the final rule would have on the industry’s players but concluded that the need to protect consumers from conflicted investment advice outweighed those concerns,” Crabtree said in his opinion. “The DOL’s decision was a reasonable one.”
A spokeswoman for Market Synergy Group declined Bloomberg BNA’s request for comment.
Carlton Fields Jorden Burt PA and Walters Bender Strohbehn & Vaughan PC represented Market Synergy. The Department of Justice represented the DOL.
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