Case 3:16-cv-01476-M Document 119 Filed 11/10/16 Page 1 of 6 PageID 9671 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, Civil Action No. 3:16-cv-1476-M Consolidated with: 3:16-cv-1530-C 3:16-cv-1537-N v. THOMAS E. PEREZ, SECRETARY OF LABOR, and UNITED STATES DEPARTMENT OF LABOR, Defendants. CHAMBER OF COMMERCE PLAINTIFFS MOTION FOR LEAVE TO FILE SUPPLEMENTAL BRIEF
Case 3:16-cv-01476-M Document 119 Filed 11/10/16 Page 2 of 6 PageID 9672 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 ( Chamber of Commerce plaintiffs ) respectfully move this Court for leave to file a supplemental brief regarding the 92-page opinion of the district court in National Association for Fixed Annuities v. Perez, No. 16-1035 (D.D.C.) ( NAFA ), which the U.S. Department of Labor ( DOL ) has filed with the Court (Dkt. 118). The proposed brief, which is less than five pages in length, is being filed concurrently with this motion. The NAFA decision upholds DOL s rule and elaborates on a number of arguments DOL advances in this Court. The Chamber of Commerce plaintiffs offer their proposed supplemental brief to respond to some of the points in the opinion DOL has lodged with the Court. Given the length of the NAFA decision, its relevance to issues presented in this case, and the support DOL presumably believes the decision lends to its position here, plaintiffs believe it is fair that they be permitted a brief, written comment on the decision. Plaintiffs also believe that their proposed brief will be helpful to the Court in its consideration of this case, because in plaintiffs assessment the NAFA court erred on certain key points and, with respect to other points, that court viewed NAFA as making materially different arguments than plaintiffs make here. Plaintiffs will, of course, be prepared to more fully address the NAFA decision at oral argument, as the Court deems appropriate.
Case 3:16-cv-01476-M Document 119 Filed 11/10/16 Page 3 of 6 PageID 9673 For the foregoing reasons, the Chamber of Commerce plaintiffs respectfully request leave to file the proposed supplemental brief. The Chamber of Commerce plaintiffs sought DOL s consent to this motion, but DOL had not responded with its position at the time of filing. Respectfully submitted, Dated: November 10, 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) 3
Case 3:16-cv-01476-M Document 119 Filed 11/10/16 Page 4 of 6 PageID 9674 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 4
Case 3:16-cv-01476-M Document 119 Filed 11/10/16 Page 5 of 6 PageID 9675 CERTIFICATE OF CONFERENCE I certify that on November 10, 2016, I discussed via telephone conference the above Motion for Leave to File Supplemental Brief with Galen Thorp, Trial Attorney at the Department of Justice. DOL had not responded with its position at the time of filing. s/ Rachel E. Mondl Rachel E. Mondl 5
Case 3:16-cv-01476-M Document 119 Filed 11/10/16 Page 6 of 6 PageID 9676 CERTIFICATE OF SERVICE The undersigned hereby certifies that on November 10, 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 6
Case 3:16-cv-01476-M Document 119-1 Filed 11/10/16 Page 1 of 2 PageID 9677 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, Civil Action No. 3:16-cv-1476-M Consolidated with: 3:16-cv-1530-C 3:16-cv-1537-N v. THOMAS E. PEREZ, SECRETARY OF LABOR, and UNITED STATES DEPARTMENT OF LABOR, Defendants. [PROPOSED] ORDER Having considered the Chamber of Commerce plaintiffs Motion For Leave To File Supplemental Brief in Chamber of Commerce v. Perez, No. 3:16-cv-01476-M, consolidated with No. 3:16-cv-01530-C and No. 3:16-cv-1537-N, it is hereby ORDERED that plaintiffs Motion is GRANTED.
Case 3:16-cv-01476-M Document 119-1 Filed 11/10/16 Page 2 of 2 PageID 9678 November _, 2016 BARBARA M.G. LYNN Chief United States District Judge 2
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 1 of 8 PageID 9679 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, Civil Action No. 3:16-cv-1476-M Consolidated with: 3:16-cv-1530-C 3:16-cv-1537-N v. THOMAS E. PEREZ, SECRETARY OF LABOR, and UNITED STATES DEPARTMENT OF LABOR, Defendants. CHAMBER OF COMMERCE PLAINTIFFS [PROPOSED] SUPPLEMENTAL BRIEF IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 2 of 8 PageID 9680 The Department of Labor ( DOL ) has filed with the Court the 92-page opinion of the district court in National Association for Fixed Annuities v. Perez, No. 16-1035 (D.D.C. Nov. 4, 2016) ( NAFA ). See Dkt. 118. That decision upholds DOL s Fiduciary Rule and elaborates on a number of arguments DOL advances in this Court. The Chamber of Commerce plaintiffs offer this supplemental brief to respond to some of the more important points in the opinion DOL has lodged with the Court, and to illustrate that the NAFA court erred on certain key points and, with respect to others, it viewed NAFA as making materially different arguments than plaintiffs make here. Plaintiffs will, of course, be prepared to more fully address the NAFA decision at oral argument, as the Court deems appropriate. 1. The NAFA decision fails to meaningfully address the overbreadth of DOL s interpretation of fiduciary, which essentially covers all sales activity and fails to distinguish, as it must, between a fiduciary relationship and a sales relationship. The roles of fiduciary and salesperson are distinct; among other things, a fiduciary is prohibited from being a salesperson to a client. See Dkt. 61 at 14-15, 22; Dkt. 109 at 3. Yet, the final Fiduciary Rule essentially covers all sales activity that a broker or insurance agent might perform, deeming it fiduciary in nature. For instance, the Rule deems it fiduciary activity merely to present a customer with a select list of investment options, or to make a recommendation as any salesperson would that a customer buy a product. AR 52; Dkt. 61 at 20. In upholding the Rule, the NAFA decision relied heavily on the contention that advice need not (as provided in the 1975 rule) be regular for a fiduciary relationship to exist. 1 Plaintiffs here disagree (Dkt. 61 at 14-17), but even supposing that particular requirement of the 1 The court perceived DOL s omission of a regular basis requirement as NAFA s principal argument under Chevron step 1, referring to it six separate times. 1
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 3 of 8 PageID 9681 1975 rule might be altered, DOL was arbitrary and capricious and transgressed the statutory text by omitting any provision for ensuring the presence of a relationship of heightened trust and confidence, the essence of fiduciary status. Id. at 14-17, 22-23; Dkt. 109 at 3-8. DOL s failure to distinguish advisory from sales relationships with respect to IRAs is all the more arbitrary and capricious because it did recognize that distinction in its seller s carve-out for large ERISA plans. Dkt. 109 at 11-12. DOL s reply had no intelligible response to this inconsistency, Dkt. 114-1 at 10, an inconsistency the NAFA court did not consider. In addition, although the NAFA court clarified that its analysis of ERISA s definitional provision was confined to construing the phrase renders investment advice, plaintiffs here also emphasize DOL s failure to account for the statute s requirement that the advice be render[ed]... for a fee. Dkt. 61 at 17-18; Dkt. 109 at 9-10. The foregoing arguments were not directly presented to the NAFA court, and were not addressed in the court s decision. The court also was not presented with, and did not address, the First Amendment concerns presented by imposing the burdens DOL did on non-fiduciary, commercial speech, which is an added reason to withhold deference to DOL and reject its interpretation. Dkt. 62 at 10-23. 2. With respect to DOL s use of its exemptive authority, the NAFA court stressed its understanding that NAFA s argument was premised on Chevron step one only. NAFA Op. 49; see also id. at 49-50 (repeatedly stating that NAFA must show DOL s approach to be unambiguously foreclosed, as required at Chevron step one). Plaintiffs here also base their challenge on Chevron step two and the Administrative Procedure Act ( APA ) (see Dkt. 109 at 23), and have placed significant emphasis on cases such as Whitman v. American Trucking Ass ns, 531 U.S. 457 (2001), and MCI Telecommunications Corp. v. AT&T Co., 512 U.S. 218 2
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 4 of 8 PageID 9682 (1994). Those cases were not cited by NAFA or the NAFA court; indeed, the court stated that NAFA had not framed its challenge to the BIC exemption on the principles embodied in these cases. NAFA Op. 54. In Whitman, the Court explained that Congress... does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions it does not, one might say, hide elephants in mouseholes. 531 U.S. at 468 (emphases added). Quoting MCI Telecommunications, the Court added: Just as we have found it highly unlikely that Congress would leave the determination of whether an industry will be entirely, or even substantially, rateregulated to agency discretion and even more unlikely that it would achieve that through such a subtle device as permission to modify rate-filing requirements,... so also we find it implausible that Congress would give to the EPA through these modest words the power to determine whether implementation costs should moderate air quality standards. Id. (emphasis added and citation omitted). These cases illustrate that DOL s modest, ancillary authority to relieve entities from certain regulatory burdens cannot be wielded to erect a whole new regulatory scheme for IRAs, a scheme as dense and complex as Congress provided for employer-sponsored plans in title I of ERISA, yet which Congress purposely omitted for IRAs in title II. It is also a key part of plaintiffs argument here that such a radical change is especially inappropriate for an agency lacking oversight or enforcement authority in the area, as DOL lacks for IRAs. The NAFA decision which acknowledged the great economic and political significance of DOL s rule, NAFA Op. 54 made a significant error in that regard when it said that DOL has long exercised jurisdiction over IRA fiduciaries. Id. That is incorrect (which is why DOL used the Best Interest Contract, or BIC, to create a private enforcement framework). See also id. at 47 (erroneously referring to DOL s authority under title II to regulate IRA advisers ). 3
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 5 of 8 PageID 9683 3. The NAFA decision also did not consider whether DOL s creation of a private cause of action is unreasonable under step two of Chevron, or arbitrary and capricious under the APA, as it viewed NAFA as making only a Chevron step one argument. In fact, the NAFA decision observed that [o]ne might reasonably ask... whether the Department of Justice could have responded to Sandoval by requiring that grant recipients enter into contracts creating an enforcement commitment to abide by the Department of Justice s disparate impact rule. NAFA Op. 60. But, the court stressed, that is not the challenge that NAFA has brought and [a]ccordingly the court need not address it. Id. at 60-61. Plaintiffs here do make that precise argument. See Dkt. 109 at 21-22. Moreover, on the question of the BIC private right of action, it was central to the NAFA decision that, in the court s assessment, NAFA had conceded that BIC claims would be governed by state law. NAFA Op. 56. Plaintiffs here make no such concession. 2 They also disagree that the concession has the import the court gave it. Rather, it is federal law that now requires IRA fiduciaries to enter contracts under the BIC exemption; that dictates the substantive terms of that contract; that specifies the forum for litigating alleged breaches; and that defines permissible limitations on available remedies all things it does, moreover, for the express purpose of establishing a viable enforcement regime. The Chamber plaintiffs cited multiple authorities indicating that such an end-run of Alexander v. Sandoval, 532 U.S. 275 (2001), is impermissible. Grochowski v. Phoenix Constr., 318 F.3d 80, 86 (2d Cir. 2003), cited approvingly in Astra USA, Inc. v. Santa Clara Cty., Cal., 563 U.S. 110 (2011); Dkt. 109 at 21-23. Those authorities may not be brushed aside on the fiction that this federally-created, 2 At oral argument in the NAFA case, the government itself originally said that its regulation would preempt state law; it was only on the government s second trip to the lectern, after the court s questioning implied that it might be better for the government s position, that the government reversed itself and contended that state law would trump federal. NAFA Hr g Tr. at 75:25-80:19, 109:2-111:25 (D.D.C. Aug. 25, 2016). 4
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 6 of 8 PageID 9684 federally-defined enforcement action is a creature of state law. Cf. Reliant Energy Servs., Inc. v. Enron Can. Corp., 349 F.3d 816, 821-22 & n.5 (5th Cir. 2003) ( Although under Section 9 of the Netting Agreement, the parties agreed that the contract shall be governed by and construed in accordance with the laws of the State of New York, there is sufficient federal interest such that federal law governs the interpretation of this contract. ). Nor may the purposeful creation of an enforceable right with the central goal of creating a risk of liability so as to police compliance with federally-prescribed standards be likened to the references to contracts in certain other federal rules. Dkt. 109 at 21. In short, plaintiffs here do not use Sandoval standing alone to challenge the DOL private right of action, as the court evidently viewed NAFA s challenge. NAFA Op. 60 n.10. Rather, plaintiffs also rely on the APA s prohibition on arbitrary and capricious agency action and cases such as MCI Telecommunications and Astra. Dkt. 109 at 23. 5
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 7 of 8 PageID 9685 Respectfully submitted, Dated: November 10, 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) 6
Case 3:16-cv-01476-M Document 119-2 Filed 11/10/16 Page 8 of 8 PageID 9686 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 7