Chamber of Commerce of The United States of America et al v. U.S. Department of Labor et al

MOTION for Summary Judgment

N.D. Tex.July 18, 2016

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA, FINANCIAL SERVICES INSTITUTE, INC., FINANCIAL SERVICES ROUNDTABLE, GREATER IRVING-LAS COLINAS CHAMBER OF COMMERCE, HUMBLE AREA CHAMBER OF COMMERCE DBA LAKE HOUSTON AREA CHAMBER OF COMMERCE, INSURED RETIREMENT INSTITUTE, LUBBOCK CHAMBER OF COMMERCE, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, and TEXAS ASSOCIATION OF BUSINESS, Plaintiffs, v. THOMAS E. PEREZ, SECRETARY OF LABOR, and UNITED STATES DEPARTMENT OF LABOR, Defendants. Civil Action No. 3:16-cv-1476-M Consolidated with: 3:16-cv-1530-C 3:16-cv-1537-N PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT Pursuant to Federal Rule of Civil Procedure 56, Local Rule 56.3, and this Court’s Order dated July 7, 2016, plaintiffs CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA, FINANCIAL SERVICES INSTITUTE, INC., FINANCIAL SERVICES ROUNDTABLE, GREATER IRVING-LAS COLINAS CHAMBER OF COMMERCE, HUMBLE AREA CHAMBER OF COMMERCE DBA LAKE HOUSTON AREA CHAMBER OF COMMERCE, INSURED RETIREMENT INSTITUTE, LUBBOCK CHAMBER OF Case 3:16-cv-01476-M Document 51 Filed 07/18/16 Page 1 of 7 PageID 2579 COMMERCE, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, and TEXAS ASSOCIATION OF BUSINESS respectfully move this Court for summary judgment on all of their claims in this action. Plaintiffs are submitting herewith a brief in support of this motion, an appendix, and a proposed order. As explained in their briefs, plaintiffs submit that they are entitled to summary judgment on each of the following grounds: 1. Defendant the U.S. Department of Labor (the “Department”) exceeded its authority in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”), the Internal Revenue Code (“Code”), and the Administrative Procedure Act (“APA”) by adopting the so-called “Fiduciary Rule” and related prohibited transaction exemptions in April 2016.1 The Fiduciary Rule impermissibly re-interprets the terms “fiduciary” and “investment advice for a fee” in a manner that conflicts with the plain meaning of ERISA and the Code. That re- interpretation is contrary to law and unreasonable. See Chamber Mem. Part I; ACLI Mem. Part 1 Definition of the Term “Fiduciary”; Conflict of Interest Rule-Retirement Investment Advice, 81 Fed. Reg. 20,946 (Apr. 8, 2016); Best Interest Contract Exemption, 81 Fed. Reg. 21,002 (Apr. 8, 2016); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, 81 Fed. Reg. 21,089 (Apr. 8, 2016); Amendment to Prohibited Transaction Exemption (PTE) 75-1, Part V, Exemptions from Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Certain Broker-Dealers, Reporting Dealers and Banks, 81 Fed. Reg. 21,139 (Apr. 8, 2016); Amendment to and Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters, 81 Fed. Reg. 21,147 (Apr. 8, 2016); Amendment to and Partial Revocation of Prohibited Transaction Exemption (PTE) 86-128 for Securities Transactions Involving Employee Benefit Plans and Broker-Dealers; Amendment to and Partial Revocation of PTE 75-1, Exemptions from Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefits Plans and Certain Broker-Dealers, Reporting Dealers and Banks, 81 Fed. Reg. 21,181 (Apr. 8, 2016); Amendments to Class Exemptions 75-1, 77-4, 80-83, and 83-1, 81 Fed. Reg. 21,208 (Apr. 8, 2016). Case 3:16-cv-01476-M Document 51 Filed 07/18/16 Page 2 of 7 PageID 2580 I; IALC Mem. Part I. The Department misused its limited exemptive authority under the Code to establish entirely new, substantive standards of conduct applicable to service providers to Individual Retirement Accounts, or IRAs, when those requirements have no basis in the Code. See Chamber Mem. Part II; ACLI Mem. Part I; IALC Mem. Part I. The Department also exceeded its statutory authority by imposing varying burdens on different types of retirement products in a deliberate effort to steer consumers towards products the Department favors and away from those it disfavors. See ACLI Mem. Part IV. 2. The Department unlawfully created a private right of action in the Best Interest Contract Exemption and Principal Transactions Exemption; only Congress may create a private right of action. See Chamber Mem. Part III; ACLI Mem. Part II. 3. The Department violated the Federal Arbitration Act by prohibiting financial institutions and insurance companies who rely on the Best Interest Contract Exemption or Principal Transactions Exemption from including an arbitration agreement with a class action waiver in their contract with customers. See Chamber Mem. Part IV. 4. The Department arbitrarily and capriciously adopted the Rule and exemptions in violation of ERISA’s “administrative feasibility” requirement with respect to variable and fixed- indexed annuities and the APA, based on an erroneous cost-benefit analysis that relied on a flawed assessment of benefits, failed to consider significant costs, neglected to examine the existing regulatory framework, and resulted in the Department arbitrarily rejecting less onerous alternatives. See ACLI Mem. Part V; Chamber Mem. Part V; IALC Mem. Part II(B). 5. The Department’s regulation of fixed-indexed and group variable annuities through the Best Interest Contract Exemption was arbitrary, capricious, and contrary to law, Case 3:16-cv-01476-M Document 51 Filed 07/18/16 Page 3 of 7 PageID 2581 including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. See IALC Mem. Part II; Chamber Mem. Part VI; ACLI Mem. Part VI. 6. The Department’s regulation of fixed-indexed and group variable annuities through the Best Interest Contract Exemption was in violation of the APA, as it was not subject to proper notice and comment procedures. See IALC Mem. Part III; ACLI Mem. Part VI; Chamber Mem. Part VI. 7. The Department’s regulation violates the First Amendment rights of financial institutions, insurance companies, financial professionals, insurance agents, consumers, and other entities and persons who are affected by the rulemaking. See ACLI Mem. Part III; Chamber Mem. Part VII. WHEREFORE, plaintiffs respectfully request that this Court grant summary judgment in favor of plaintiffs on all of their claims, declare unlawful and set aside the Fiduciary Rule and the related prohibited transaction exemptions, vacate and enjoin the implementation and enforcement of the same, and grant any further relief to which plaintiffs are justly entitled. Case 3:16-cv-01476-M Document 51 Filed 07/18/16 Page 4 of 7 PageID 2582 Respectfully submitted, Dated: July 18, 2016 s/ Eugene Scalia James C. Ho, Texas Bar No. 24052766 Russell H. Falconer, Texas Bar No. 24069695 GIBSON, DUNN & CRUTCHER LLP 2100 McKinney Avenue Suite 110 Dallas, TX 75291 Telephone: (214) 698-3264 Facsimile: (214) 571-2917 jho@gibsondunn.com rfalconer@gibsondunn.com Eugene Scalia* Jason J. Mendro* Paul Blankenstein* Rachel E. Mondl* Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 Telephone: (202) 955-8500 Facsimile: (202) 467-0539 escalia@gibsondunn.com jmendro@gibsondunn.com pblankenstein@gibsondunn.com rmondl@gibsondunn.com Counsel for Plaintiffs Chamber of Commerce of the United States of America, Financial Services Institute, Inc., Financial Services Roundtable, Greater Irving-Las Colinas Chamber of Commerce, Humble Area Chamber of Commerce DBA Lake Houston Area Chamber of Commerce, Insured Retirement Institute, Lubbock Chamber of Commerce, Securities Industry and Financial Markets Association, and Texas Association of Business * Admitted pro hac vice (continued on next page) Case 3:16-cv-01476-M Document 51 Filed 07/18/16 Page 5 of 7 PageID 2583 Steven P. Lehotsky* U.S. CHAMBER LITIGATION CENTER 1615 H Street, NW Washington, DC 20062 Telephone: (202) 463-5337 Facsimile: (202) 463-5346 slehotsky@uschamber.com Counsel for Plaintiff Chamber of Commerce of the United States of America J. Lee Covington II* INSURED RETIREMENT INSTITUTE 1100 Vermont Avenue, N.W. Washington, DC 20005 Telephone: (202) 469-3000 Facsimile: (202) 469-3030 lcovington@irionline.org Counsel for Plaintiff Insured Retirement Institute David T. Bellaire* Robin Traxler* FINANCIAL SERVICES INSTITUTE, INC. 607 14th Street, N.W. Suite 750 Washington, DC 20005 Telephone: (888) 373-1840 Facsimile: (770) 980-8481 david.bellaire@financialservices.org robin.traxler@financialservices.org Counsel for Plaintiff Financial Services Institute, Inc. Kevin Carroll* Ira D. Hammerman* SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION 1101 New York Avenue, N.W. 8th Floor Washington, DC 20005 Telephone: (202) 962-7300 Facsimile: (202) 962-7305 kcarroll@sifma.org ihammerman@sifma.org Counsel for Plaintiff Securities Industry and Financial Markets Association Kevin Richard Foster* Felicia Smith* FINANCIAL SERVICES ROUNDTABLE 600 13th Street, N.W. Suite 400 Washington, DC 20005 Telephone: (202) 289-4322 Facsimile: (202) 589-2526 richard.foster@FSRoundtable.org felicia.smith@FSRoundtable.org Counsel for Plaintiff Financial Services Roundtable * Admitted pro hac vice Case 3:16-cv-01476-M Document 51 Filed 07/18/16 Page 6 of 7 PageID 2584 CERTIFICATE OF SERVICE The undersigned hereby certifies that on July 18, 2016, the foregoing document was electronically submitted with the clerk of the court for the United States District Court, Northern District of Texas, using the electronic case file system of the court. I hereby certify that I have served all counsel of record electronically or by another manner authorized by Federal Rule of Civil Procedure 5(b)(2). s/ Eugene Scalia Eugene Scalia* Case 3:16-cv-01476-M Document 51 Filed 07/18/16 Page 7 of 7 PageID 2585 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA, FINANCIAL SERVICES INSTITUTE, INC., FINANCIAL SERVICES ROUNDTABLE, GREATER IRVING-LAS COLINAS CHAMBER OF COMMERCE, HUMBLE AREA CHAMBER OF COMMERCE DBA LAKE HOUSTON AREA CHAMBER OF COMMERCE, INSURED RETIREMENT INSTITUTE, LUBBOCK CHAMBER OF COMMERCE, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, and TEXAS ASSOCIATION OF BUSINESS, Plaintiffs, v. THOMAS E. PEREZ, SECRETARY OF LABOR, and UNITED STATES DEPARTMENT OF LABOR, Defendants. Civil Action No. 3:16-cv-1476-M Consolidated with: 3:16-cv-1530-C 3:16-cv-1537-N [PROPOSED] ORDER Upon due consideration of plaintiffs’ motion for summary judgment, all memoranda, and other materials submitted in support of and in opposition to that motion, and arguments presented by counsel, IT IS HEREBY ORDERED that the motion is GRANTED, and it is further DECLARED that defendants’ Fiduciary Rule and related prohibited transaction exemptions are arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law within the meaning of 5 U.S.C. § 706(2)(A), contrary to constitutional rights secured by the First Amendment within the meaning of 5 U.S.C. § 706(2)(B), promulgated in excess of Case 3:16-cv-01476-M Document 51-1 Filed 07/18/16 Page 1 of 2 PageID 2586 2 statutory jurisdiction, authority, or limitations within the meaning of 5 U.S.C. § 706(2)(C), and promulgated without observance of procedures required by law within the meaning of 5 U.S.C. § 706(2)(D); ORDERED that the Fiduciary Rule and related prohibited transaction exemptions are VACATED and that the U.S. Department of Labor (“Department”) and all its officers, employees, and agents are PERMANENTLY ENJOINED from implementing, applying, or enforcing the Fiduciary Rule and related prohibited transaction exemptions; DECLARED that the Fiduciary Rule and Best Interest Contract Exemption are unconstitutional as applied to the constitutionally protected commercial speech of plaintiffs’ members; and ORDERED that the Department and all its officers, employees, and agents are PERMANENTLY ENJOINED from enforcing the Fiduciary Rule and related prohibited transaction exemptions against plaintiffs’ members engaged in constitutionally protected commercial speech. It is SO ORDERED this _____ of _______, 2016. THE HONORABLE BARBARA M.G. LYNN Case 3:16-cv-01476-M Document 51-1 Filed 07/18/16 Page 2 of 2 PageID 2587