DOL Rolls Over in Thrivent Suit, Asks for Stay
July 17, 2017 by Emile Hallez
The Department of Labor took a step back from its defense late last week in a lawsuit brought by Thrivent Financial, going as far as suggesting summary judgment in the plaintiff’s favor.
The development follows the DOL’s recent announcement in a similar lawsuit that it does not intend to enforce a provision in the fiduciary rule’s accompanying Best Interest Contract Exemption that would prohibit arbitration agreements. Such agreements could help firms that use the BIC exemption avoid class-action litigation, because individual plaintiffs would have to file suits independently against brokers, rather than as a class represented by a few.
“First, because the Department of Labor no longer defends the one regulatory provision challenged in this action—the application of Best Interest Contract Exemption to arbitration agreements—the Department withdraws its cross-motion for summary judgment,” a DOL attorney wrote in a letter to U.S. District Court Judge Susan Nelson. “Second, the Department renews its request for a stay of litigation…. The Department no longer defends the arbitration-restricting condition, and therefore does not intend to enforce the provision. And unless plaintiff amends its contracts to include the limitation, no mechanism for private enforcement of the provision is apparent.”
Supporting the argument for a stay is that the DOL is reviewing the rule at the behest of President Donald Trump. The agency is currently collecting public comments through July 21 regarding whether numerous provisions of the rule, including those affecting arbitration agreements, should go into effect on Jan. 1, 2018, as scheduled.
Further, if the judge opts to not freeze proceedings on Thrivent’s pending motion, the DOL would support a judgment order pertaining to the arbitration agreements issue, the agency stated.
Meanwhile, the AARP and other supporters of the fiduciary rule recently weighed in. The lobbying group, along with Better Markets, the Consumer Federation of America and others, sent a letter to Judge Nelson, urging the her to not consider a nationwide injunction on the class-action lawsuit component of the BIC exemption.
Earlier this month, the DOL indicated in a letter to the courts that although it will continue defending the rule as a whole, it will not do so for the component of the BIC exemption that prohibits brokers from entering into arbitration agreements with investors. That issue is at the heart of Thrivent’s lawsuit against the DOL.
“Because of the government’s late-breaking change in position, this court confronts an unusual situation: there is no longer any disagreement between the parties, and no party to this litigation is defending the important class-action provision that the plaintiffs have challenged here,” the groups stated in a friend-of-the-court brief.
The DOL seeks comments about that provision, and whether it should be scrapped entirely or revised, the letter noted.
“Requiring the agency to formally modify or reaffirm its rule through the proper administrative channels—instead of through the back door of non-adversarial litigation—is the prudent course of action,” the groups wrote.
“Under the circumstances, it would be inappropriate to entertain the plaintiffs’ request for a nationwide injunction.”
