Some financial industry heavyweights are on a forum-shopping trip to try and block the Department of Labor’s controversial fiduciary rule.
Late Wednesday, a group of nine plaintiffs filed a complaint challenging the rule in the U.S District Court for the Northern District of Texas. The complaining parties include the expected sharks of the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Institute (FSI), but also feature the seemingly curious inclusions of relative minnows, like the Lake Houston Area Chamber of Commerce and the Humble Area Chamber of Commerce.
Why are the big fish so willingly bringing the little ones along for the ride? The answer is easy: They want this case to be heard in Texas. In keeping with the reputation of the Lone Star State, Texas courts have a long and well-known history of being pro-business and anti-regulation. By including some specifically Texas-based groups, such as the aforementioned chambers of commerce, the plaintiffs are hoping to better establish that Texas federal courts actually have jurisdiction over this complaint and prevent it from being dismissed or kicked to a less favorable location. Plus, given the fact that the Northern District Court in particular has recently butted heads with the DOL on several occasions, it’s difficult to view the decision to bring the complaint there as mere coincidence.
Most in the industry view this suit (and the inevitable sister suit from the insurance industry that’s sure to follow) as just about hopeless on the part of the plaintiffs and feel that the DOL rule is a virtual inevitability. However, with the right judge in the right court, just about anything is possible. So let’s have some fun and take a quick look at what the future could hold if the proceedings don’t go quite as expected.
The plaintiffs are ultimately requesting that the rule be completely thrown out. Whether that actually comes to pass is too far in the future to speculate and likely a matter for the Supreme Court. What’s more interesting (and immediately relevant) is the plaintiffs' request for a postponement of the effective date of the rule until the conclusion of the case, and, eventually, for a nationwide injunction preventing the DOL or its officers from taking action under the rule or its exemptions. These two requests are the heart of this suit and reveal its likely true intent: to stall for as much time as possible.
The postponement is the lesser of the two (and the more likely to be granted), as it would only hold things up for a brief period. It’s the nationwide injunction (there’s some controversy regarding district courts and nationwide injunctions, but it’s beyond the scope of this article) that could really gum up the works. If the court finds in favor of the plaintiffs and puts that injunction into place, it will remain there throughout the appeals process until lifted. As this case inevitably works its way up through the 5th Circuit Court of Appeals and potentially to the Supreme Court, a process that may take years, that injunction could potentially remain, blocking the rule’s implementation.
It’s all about keeping the bell un-rung for the plaintiffs. If they fail to get the injunction and the rule goes into effect, the "damage" will be hard to undo even if they fight it up to the Supreme Court and win. Money will have been spent, policies will have been changed and clients will expect more. However, if they get the injunction, then they can try to ride out the lengthy appeals process, enjoy the status quo and hope that the eventual ninth Supreme Court appointee tips the scales in their favor.
Though remote, this complaint has the potential to cause huge (and embarrassing) headaches throughout the financial industry.