DOL, Thrivent Remain at Odds in Fiduciary Litigation

The fiduciary regulation’s anti-arbitration clause might not yet be active, and it might ultimately be moot, but as it remains on the table – well, the parties still can’t agree on a resolution, according to the latest round of legal briefs in litigation pending between the Labor Department and Thrivent Financial for Lutherans.

In a brief filed in the U.S. District Court for the District of Minnesota (Thrivent Fin. for Lutherans v. Acosta, D. Minn., No. 0:16-cv-03289-SRN-DTS, briefs on issue of mootness 9/7/17), the Labor Department noted that “whether this case is now moot appears to present a close and novel question,” and that while they claimed to have “no definitive position,” because certain events that are likely to occur soon would definitively moot the case, it renewed its request that the court stay the case during the pendency of the administrative process for this additional reason.

It its brief, the Labor Department said that if the issue was not moot at present (as it thinks it is), “this case is likely to become moot before the challenged provision ever applies to Plaintiff.” The Labor Department went on to note that it had not only stated its agreement with the plaintiffs that the challenged provision is improper as applied to arbitration agreements, but it had issued:

  • a notice of proposed rulemaking to delay the relevant applicability date by 18 months in order to provide time to consider public input and possible revisions to the rulemaking, and engage in rulemaking actions to finalize any revisions; and
  • a bulletin to “provide guidance and assurance to Plaintiff and to other interested parties in the meantime” that not only “definitively states that neither the Labor Department nor the Treasury Department will pursue a claim against any fiduciary, based on that fiduciary’s failure to comply with the arbitration provision in the BIC Exemption,” but in which the Labor Department “…further indicates in the bulletin its willingness, if necessary, to consider additional measures including retroactive relief.”

Beyond that, the Labor Department noted (as it has previously) that “…the promulgation of an exemption that does not include the challenged limitation on arbitration agreements would eliminate any prospect of injury to Plaintiff, thereby mooting the case.” And if that weren’t enough, the filing says that “it is also plausible that a significant delay of the challenged condition (such as that proposed), coupled with the proposal of such an exemption, could moot the case even before the proposal is finalized because a purely speculative harm is insufficient to defeat a showing of mootness.”

On the Other Hand…

On the other hand, the Labor Department acknowledged that “it is less clear whether the case is currently moot,” though it opined that “under some circumstances, a case can be rendered moot by the government’s agreement with a plaintiff about the merits of a case that provides sufficient assurance of non-enforcement—even before a repeal of statutory or regulatory language.”

It also noted that “if the January 1, 2018 applicability date is not delayed as proposed, it is possible that a retirement investor could seek to enforce the Employee Retirement Income Security Act (“ERISA”) against Plaintiff for actions in any period in which the challenged provision of the Best Interest Contract (“BIC”) Exemption becomes fully applicable,” and that “in such a suit, the investor could claim that Plaintiff had engaged in a prohibited transaction and further claim that the BIC Exemption provides no defense because Plaintiff’s contracts had not complied with every requirement of the exemption.”

All that conjecture notwithstanding, the Labor Department concludes that since the plaintiff “has never been subject to the challenged provision, and likely never will be,” and that the likelihood that this case will be mooted before the plaintiff is “subject to any real consequences counsels in favor of staying this litigation.”

(Still) A Very Real Controversy

As for Thrivent, the plaintiff in this case, after rearticulating its concerns about the impact of the anti-arbitration clause, and the potential impact(s) to its business, its brief closes by noting that “DOL has acknowledged in open court that the BIC Exemption is unlawful and that Thrivent’s case is not moot.” Moreover, it said that “DOL’s statements that it does not intend to enforce the anti-arbitration condition of the BIC Exemption, even if credited, do not resolve the real and imminent threat to Thrivent that it must either take steps to comply with the Fiduciary Rule as written, or face the myriad consequences of non-compliance.”

They conclude that, “The BIC Exemption’s anti-arbitration condition remains on the books as a rule promulgated under the APA, and it impacts Thrivent,” and that the litigation “continues to present a very real controversy, and remains ripe for adjudication by this Court.”

We’ll see if the court agrees…

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