The Labor Department’s fiduciary rule was vacated in its entirety March 15 by a federal appeals court in Louisiana. It’s a win for the U.S. Chamber of Commerce and other business groups that have fought to defeat the rule.
The DOL’s action in establishing the fiduciary rule was arbitrary, capricious, not in accordance with the law, and in excess of its statutory authority and limitations, the U.S. Court of the Appeals for the Fifth Circuit held in a 2-1 decision.
The decision comes two days after the Tenth Circuit upheld the Obama-era rule that regulates the financial advice given to retirement savers. In that decision, the Tenth Circuit said the DOL gave sufficient notice of the proposed rule change, and it acted reasonably in treating fixed indexed annuities differently from other fixed annuities.
The fiduciary rule has already “spawned significant market consequences, including the withdrawal of several major companies, including Metlife, AIG, and Merrill Lynch from some segments of the brokerage and retirement investor market,” the Fifth Circuit said.
Parts of the fiduciary rule that the DOL called the “least controversial” are already in effect, while key provisions remain under review until 2019 at the direction of the Trump administration. Multiple industry groups and companies have filed lawsuits challenging the fiduciary rule from various angles.
Most federal district judges who have ruled on these cases upheld the rule in its entirety, handing losses to the U.S. Chamber of Commerce in this case, and to Market Synergy and the National Association for Fixed Annuities in other cases. A judge in Minnesota temporarily blocked the DOL from enforcing the rule’s anti-arbitration provision after the agency changed positions and announced it would no longer defend the provision in court.
The decision to vacate the fiduciary rule is unexpected as last year the Fifth Circuit declined to temporarily block the rule during the appeal.
The two decisions create a circuit split and make it more likely for the U.S. Supreme Court to review the controversial rule in the near future.
Chief Judge Carl E. Stewart issued a separate opinion dissenting.
The case is U.S. Chamber of Commerce v. DOL, 5th Cir., No. 17-10238, order reversing district court decision, vacating fiduciary rule 3/15/18.