Late last week, the states of California, New York, and Oregon (“States”), along with the American Association of Retired Persons (“AARP”), launched an eleventh hour attempt to rescue the DOL’s fiduciary rule in response to the Fifth Circuit’s ruling last month in U.S. Chamber Commerce v. U.S. Dep’t of Labor. The States and AARP move to intervene in U.S. Chamber of Commerce for the purpose of challenging last month’s ruling by requesting a rehearing before the entire Fifth Circuit. While this effort to defend the fiduciary rule may be popular with the respective constituents of the States and AARP, these parties face an uphill battle to secure a reversal of the U.S. Chamber of Commerce decision.
As a threshold issue, the States and AARP must convince the Fifth Circuit to grant their request to intervene in the appeal before the Fifth Circuit will even consider their request for a rehearing en banc. To meet their burden, the Sates and AARP must demonstrate that: (1) the motion is timely; (2) they have a legally protected interest in the action; (3) the outcome of the case may impair that interest; and (4) the existing parties do not adequately represent that interest. Ross v. Marshall, 426 F.3d 745, 753 (5th Cir. 2005).
The States and AARP face significant obstacles in trying to persuade the Fifth Circuit to grant their request to intervene. Among other issues, the States and AARP fact particularly difficult arguments regarding the timeliness and legally protected interest prongs. With regard to timeliness, the States and AARP argue that their motion to intervene is timely—even though they filed it just two days before the deadline to request a rehearing en banc and after years of extensive litigation—because up until now the DOL had been defending the fiduciary rule in the Fifth Circuit and in other courts around the country. As to the legally protectable interest prong, the States argue that they have standing because the elimination of the fiduciary rule will cause their residents “to lose billions in retirement investment gains” based on the DOL’s own projections made in support of the rule that the DOL argues will result in a substantial loss in tax revenue for the States. AARP, in turn, argues that it has standing because its members will be harmed if the fiduciary rule is extinguished because its members will be deprived of investment advice in their retirement accounts that is in their “best interests.”
Not surprisingly, the U.S. Chamber of Commerce (“U.S. Chamber”) wasted no time in challenging the intervention request by filing a vigorous opposition yesterday. The U.S. Chamber argues, inter alia, that the States and AARP lack standing because the injuries they claim are purely hypothetical. With respect to the States, the U.S. Chamber asserts that the mere potential for lost future tax revenue is insufficient to show that the States have sustained an injury-in-fact. As to AARP, the U.S. Chamber contends that its members have not suffered any harm because they can still receive financial advice that is in their “best interest” even in the absence of the fiduciary rule. On this point, the U.S. Chamber argues that there are ample protections already in place, such as existing FINRA rules that require broker-dealers to act in their customers’ bests interests when taking certain actions, state insurance regulations that are designed to protect consumers, and federal securities laws that make registered investment advisers fiduciaries. The U.S. Chamber thus argues that AARP’s members have not suffered harm because the type of investment advice they seek is available regardless of whether the DOL’s fiduciary rule survives.
The U.S. Chamber also attacks the request to intervene on the grounds that it is untimely. Specifically, the U.S. Chamber argues that the underlying litigation has been ongoing for years without any effort by the States or the AARP to intervene. The U.S. Chamber points out that the States and AARP had ample time to seek intervention because they knew more than a year ago that the day may come when the DOL may no longer defend the fiduciary rule based on the comments made by President Donald Trump’s administration when President Trump took office in January 2017. The U.S. Chamber further notes that the States and AARP did not seek to intervene until after the Fifth Circuit issued its ruling in mid-March and, even then, they waited to seek intervention until two business days before the deadline to file a petition for rehearing en banc.
While it remains to be seen whether the Fifth Circuit will grant the request of the States and AARP to intervene, it is clear that they must overcome significant hurdles in order to make their last-ditch effort to save the fiduciary rule. In addition to the difficult legal arguments they must contend with regarding standing and the timeliness of their request, the States and AARP must convince the Fifth Circuit that it should permit them to defend a rule that the responsible federal regulator has decided to abandon. Moreover, the question of whether the States and AARP should be permitted to intervene is only a threshold issue they must overcome to continue their fight. Even if the Fifth Circuit were to permit intervention, the States and AARP would still need to persuade the court that it should rehear the appeal en banc and reverse the ruling made by the three-judge panel in March.
George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.