The long-standing dispute over the fiduciary regulation’s anti-arbitration clause has finally drawn to a close – and something of a “win-win.”
Judge Susan Nelson of the U.S. District Court for the District of Minnesota granted Thrivent’s motion (Thrivent Fin. for Lutherans v. Acosta, 2017 BL 396118, D. Minn., No. 0:16-cv-03289-SRN-DTS, order granting preliminary injunction 11/3/17) for a preliminary injunction – but also granted the Labor Department’s request to temporarily halt the proceedings. Nelson explained that halting the case would allow the administrative process to fully develop, possibly resolving the dispute in a more economical and efficient way.
Thrivent brought this suit pursuant to section 702 of the Administrative Procedure Act, challenging a requirement contained in the fiduciary regulation that Thrivent claimed would effectively prohibit it from requiring individual arbitration to resolve disputes with its members. Specifically, Thrivent had argued that the new requirement contravenes the Federal Arbitration Act which broadly “reflects an emphatic federal policy in favor of arbitral dispute resolution.” Thrivent had asked the court to declare the requirement in violation of the APA and the FAA, and enter a permanent injunction prohibiting its enforcement. The anti-arbitration provision at issue seeks to restrict financial advisers from requiring retirement savers to waive their right to class litigation, and is part of the fiduciary regulation’s Best Interest Contract Exemption (BICE).
Initially, the Labor Department had argued that the BICE’s ban against class-action waivers did not violate the FAA, and that the agency had the authority to condition exemptions on adherence to certain standards, including allowing class actions. And then we had the 2016 election, a change in administrations, and – according to the court – “shortly after the submission of the summary judgment briefing, but prior to the hearing on the motions, DOL requested a stay of the proceedings,” having informed the court that President Trump had on Feb. 3 issued a memorandum to the Secretary of Labor “directing him to examine the Fiduciary Duty Rule and to prepare an updated legal and financial analysis concerning certain aspects of the Rule.” The Labor Department said that Thrivent could have another opportunity to seek an administrative change to that part of the rule, or the Labor Department might “act to revise or rescind the challenged provision.”
Asked by the Labor Department to grant a stay in the proceedings in the wake of its proposed extension of the April 10, 2017, applicability date for the rulemaking and exemptions, as well as a 45-day comment period, the court had declined to do so. Then in July 2017, the DOL filed a notice of withdrawal of its cross-motion for summary judgment and its opposition to Plaintiff's summary judgment motion, explaining – as the court described it – that "the Department no longer defends the one regulatory provision challenged in this action – the application of [BIC] Exemption § II(f)(2) to arbitration agreements [ ].” The DOL renewed its request for a stay, “arguing that because the challenged provision was not yet applicable to Thrivent, and DOL was reassessing both the exemption and broader rulemaking, a stay would promote judicial economy and likewise conserve the parties’ resources.”
Not surprisingly, Thrivent opposed that motion to stay, arguing that neither the possibility of future regulatory changes nor the DOL’s change of legal position, supports a stay, and that “while DOL fails to assert any hardship that it would suffer absent a stay, Thrivent will suffer irreparable harm if the Court grants a stay.”
Judge Nelson noted that four factors had to be considered to determine if preliminary injunctive relief was warranted: “(1) the movant's likelihood of success on the merits; (2) the threat of irreparable harm to the movant in the absence of relief; (3) the balance between that harm and the harm injunctive relief would cause to the other litigants; and (4) the public interest.”
She concluded that “Thrivent has sufficiently demonstrated the threat of irreparable harm, both now and in the future,” going on to explain that, “Notwithstanding DOL’s current efforts to extend the BIC Exemption’s applicability date, its own guidance recognizes that regulated entities such as Thrivent “may incur undue expense to comply with conditions or requirements that [DOL] ultimately determines to revise or repeal.”
On the issue of likelihood of success, she noted that “because DOL concedes that the anti-arbitration condition violates the FAA, the Court finds that Thrivent is likely to succeed on the merits … Consideration of the remaining factors of the balance of harms and public interest also weigh in Thrivent's favor,” she wrote. “DOL will suffer no harm, and the public interest will be served, if it is enjoined from enforcing an invalid rule.”
The ruling means that Thrivent won’t be considered to be out of compliance with the fiduciary rule’s Best Interest Contract Exemption as a result of maintaining its alternative dispute resolution program. And the Labor Department gets its request to stay the proceedings.