Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 1 of 11 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS MARKET SYNERGY GROUP, INC, v. Plaintiff, UNITED STATES DEPARTMENT OF LABOR, et al., Defendants. Civil Action No. 5:16-cv-04083 JOINT MOTION FOR SCHEDULING ORDER REGARDING DEFENDANTS ANSWER, ORAL ARGUMENT ON PLAINTIFF S PRELIMINARY INJUNCTION MOTION, AND FILING OF THE ADMINISTRATIVE RECORD Pursuant to Local Rule 16.1, Market Synergy Group, Inc. ( Plaintiff and the United States Department of Labor, Thomas E. Perez, Secretary of the United States Department of Labor and Phyllis C. Borzi, Assistant Secretary of the United States Department of Labor (collectively, the Department, bring this joint motion for a scheduling order in this case. Although this case will proceed on the basis of an administrative record and is therefore exempt from a mandatory scheduling order under Local Rule 16.1(b, the parties agree that addressing the items included here would serve the Court s and the parties interests. BACKGROUND In April 2016, the Department issued its final rule revising its interpretation of fiduciary investment advice for purposes of the Employee Retirement Income Security Act of 1974, as amended ( ERISA, 29 U.S.C. 1001 et seq., and the Internal Revenue Code of 1986, as amended ( the Code, 26 U.S.C. 1 et seq. See 81 Fed. Reg. 20946 (Apr. 8, 2016. In connection with the rule, the Department, among other things, granted a new Best Interest
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 2 of 11 Contract ( BIC Exemption and amended Prohibited Transaction Exemption ( PTE 84-24, both of which permit fiduciaries, contingent upon meeting certain requirements, to engage in transactions involving ERISA plans or individuals retirement accounts ( IRAs that would otherwise be prohibited under ERISA and the Code. The rule and amendment to PTE 84-24, which become applicable on April 10, 2017, will require fiduciaries providing investment advice concerning fixed indexed annuities to rely on the BIC Exemption, if they wish to engage in certain prohibited transactions, rather than PTE 84-24. Plaintiff filed suit on June 8, 2016, challenging the amendment of PTE 84-24 under the Administrative Procedure Act ( APA. On June 17, 2016, plaintiff filed a motion to preliminarily enjoin the Department from implementing the amendment to and partial revocation of PTE 84-24 such that PTE 84-24 as it existed prior to the amendment and partial revocation will remain in effect during the litigation s pendency. In addition to this action, four other actions have been filed challenging aspects of the same rule and exemptions. See Chamber of Commerce of the United States of America v. Perez, No. 3:16-cv-01476-M (N.D. Tex. June 1, 2016; Nat l Ass n for Fixed Annuities v. Perez, No. 1:16-cv-01035-RDM (D.D.C. June 2, 2016; American Council of Life Insurers v. U.S. Dep t of Labor, No. 3:16-cv-01530-C (N.D. Tex. June 8, 2016; and Indexed Annuity Leadership Council v. Perez, No. 3:16-cv-1537-N (N.D. Tex. June 8, 2016. A motion for preliminary injunction was also filed in the U.S. District Court for the District of Columbia, and a schedule was set for the Department to respond to that motion, and file a cross-motion for summary judgment, on July 8, 2016, with oral argument on those motions set for August 25, 2016. See Minute Order, Nat l Ass n for Fixed Annuities v. Perez, No. 1:16-cv-01035-RDM (D.D.C. June 6, 2016. The three cases in the Northern District of Texas have been consolidated and the parties have proposed to that court to proceed directly to summary judgment briefing. See Order, Chamber of 2
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 3 of 11 Commerce v. Perez, No. 3:16-cv-01476-M (N.D. Tex. June 21, 2016, ECF No. 43; Joint Mot. for Scheduling Order, Chamber of Commerce v. Perez, No. 3:16-cv-1476-M (N.D. Tex. June 24, 2016, ECF No. 44. DISCUSSION The parties have agreed that oral argument should be held on the motion for preliminary injunction, that the Department s time to answer should be extended, and that an index to the administrative record should be filed. The parties have not reached agreement on the timing of oral argument, but present the issues for the Court s consideration. 1. Oral Argument on the Preliminary Injunction Motion The parties agree that oral argument is warranted on Plaintiff s motion for preliminary injunction. The parties have not reached agreement on proposed dates for that argument. Due to pre-existing travel plans, counsel for the parties are collectively unavailable from August 25 to September 13, 2016. a. Plaintiff s Position As explained more fully at pages 39 through 41 of Plaintiff s memorandum of law in support of its motion for preliminary injunction, and as supported by the record cited therein, time is of the essence. Each passing week without the interim relief requested brings the numerous, significant harms articulated in Plaintiff s memorandum closer to actualization. Even with an April 2017 applicability date of amended PTE 84-24, Plaintiff, independent marketing organizations, and independent insurance agents are all at imminent risk of being left behind by their product suppliers, who are now formulating business strategies and policies for dealing with the Department s actions. 3
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 4 of 11 Among other things, the Department states below that the [g]rant of an injunction would not, with certainty, stay the applicability date because a merits decision is likely before that point, and an ultimate decision upholding the rule in this action would nullify any [preliminary] injunction staying the applicability date. Plaintiff does not agree with this statement. First, Plaintiff s preliminary injunction request is focused on a specific aspect, and a specific deleterious effect, of the Department s amendment and partial revocation of PTE 84-24. As explained in Plaintiff s memorandum of law in support of its motion for preliminary injunction, Plaintiff and many others in the fixed indexed annuity industry currently face an existential threat to their businesses and careers. These affected parties are not in a position to know whether a merits decision in this action is likely before the approaching applicability date of the Department s new rules, particularly given the likelihood of an appeal regardless of which party prevails in this Court. Moreover, without preliminary injunctive relief, Plaintiff and others similarly affected will be forced, now, to make very costly business and financial decisions as a result of what Plaintiff believes will be proven to be unlawful and unjustified action by the Department. Second, even under the Department s hypothetical scenario where this action results in an ultimate decision upholding the rule, such a decision will not necessarily nullify any [preliminary] injunction staying the applicability date of the amendment and partial revocation of PTE 84-24 as it relates to fixed indexed annuity sellers. Plaintiff s motion for preliminary injunction accounts for this possibility, while explaining why temporary relief from the current applicability date of the Department s new rules may still be necessary and equitable even if the Court ultimately upholds the Department s amendment and partial revocation of PTE 84-24. On page 43 of its memorandum of law in support of its motion for preliminary injunction, Plaintiff 4
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 5 of 11 states that in the event the Department prevails on the merits, Plaintiff would conditionally request that the Court order the Department to set a new applicability date that provides Plaintiff, its independent marketing organization members, independent insurance agents, and the rest of the fixed indexed annuity industry a reasonable and adequate period of time after the disposition of the case to come into compliance with the Department s new rules and related exemptions. Thus, Plaintiff respectfully disagrees with the Department s nullification argument. Moreover, the Department states that plaintiff waited more than two months after the rule and related exemptions and amendments were published to file its preliminary injunction motion. Again, the Department fails to appreciate the unique and dynamic situation that Plaintiff and the rest of the fixed indexed annuity industry (including the tens of thousands of independent life insurance agents whose livelihoods are at stake face in connection with the Department s totally unexpected about-face regarding the treatment of fixed indexed annuities in the final version of the amendment and partial revocation of PTE 84-24. In addition to going through the necessary process of analyzing the Department s massive final rulemaking package in relation to the proposed package, evaluating the prospects for a legislative fix, retaining counsel, and otherwise preparing to initiate litigation, Plaintiff and its independent marketing organization members needed to allow some time to determine what the insurance companies and others with which they do business, after digesting the final rulemaking package themselves, intend to do (or were at least considering doing in response to the Department s action. The parties have proposed that Plaintiff s reply in support of its motion for preliminary injunction be due on August 5, 2016. Plaintiff, however, will commit to filing its reply on or before August 1. Accordingly, Plaintiff requests oral argument on any date convenient to the Court between August 2 and August 23. 5
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 6 of 11 Plaintiff further proposes that the Court allot a total of four hours to hear the argument. Although plaintiff does not intend to call any witnesses at the hearing, it intends to seek to make available for examination by the Court the following persons: Sheryl Moore, Lance Sparks, and Donald Wales. Each of these persons submitted declarations in support of Plaintiff s motion for preliminary injunction. b. Defendants Position Defendants propose that the argument be scheduled for September 19, 2016 or at the Court s convenience thereafter, as counsel for Defendants have significant deadlines requiring considerable preparation in other cases challenging the rule and exemptions at issue here on August 5, 10, 19, and 25, and counsel for both parties will be unavailable from August 25 through September 13. Counsel for Defendants are unavailable from August 29 to September 13 due to a combination of work and vacation travel, including an international trip, and understand that counsel for Plaintiff will also be unavailable during the majority of that period. Although counsel for Plaintiff has requested a hearing date in August, any date prior to September 19 would be unduly burdensome for Defendants. Dates prior to or including August 19 are not feasible because on August 5, counsel for the Department must submit a brief in reply to a motion for preliminary injunction in a case challenging both the rule and related exemptions in National Association for Fixed Annuities (D.D.C.; on August 10, counsel for the Department must file a joint appendix of the relevant portions of the administrative record and a brief with conforming citations in the same case; and on August 19, counsel for the Department must submit a brief in response to three separate summary judgment motions in Chamber of Commerce (N.D. Tex., consolidated also challenging both the Rule and related exemptions. Those cases raise many more issues than are presented by the instant action, including numerous 6
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 7 of 11 claims under the Administrative Procedures Act (APA, the Federal Arbitration Act, the Regulatory Flexibility Act, and the Fifth and First Amendments of the United States Constitution. Accordingly, an argument scheduled any time between August 2 and August 23 would be unduly burdensome to Defendants because travel and preparation for the argument would interfere with Defendants preparation for and adherence to previously scheduled courtordered deadlines for the Department s briefs and an oral argument in other courts. Furthermore, setting the hearing for mid-september will not prejudice plaintiff. Importantly, the challenged rule will not become applicable for another eight months. See 81 Fed. Reg. 20946. Accordingly, grant of a preliminary injunction, staying a rule that has no direct effect until the April 2017 applicability date, would do nothing in the present except to inform Plaintiff s estimation of the likelihood that PTE 84-24 will ultimately be upheld or vacated. Grant of an injunction would not, with certainty, stay the applicability date because a merits decision is likely before that point, and an ultimate decision upholding the rule in this action would nullify any injunction staying the applicability date. Moreover, as evidence that time is not of the essence, plaintiff waited more than two months after the rule and related exemptions and amendments were published to file its preliminary injunction motion. A preliminary injunction would not relieve Plaintiff of an existing obligations under the regulation, nor would it guarantee that the regulation will not go into effect in April 2017. Plaintiff s hope that a preliminary injunction in this case would influence the actions of third party insurance producers in a way beneficial to Plaintiff is entirely speculative and insufficient for preliminary injunctive relief, especially in light of the multiple pending cases those third parties could take into account. Under these unique circumstances, a hearing date of September 19, 2016 would not prejudice Plaintiff. 7
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 8 of 11 Finally, Plaintiff argues that it would benefit even if a preliminary injunction was vacated by a merits decision prior to April 2017 because, in that event, it has asked the Court to further delay the applicability of the Conflict of Interest Rule. That argument fails to support Plaintiff s schedule proposal because it is both unfounded and irrelevant. For reasons that will be addressed in later briefing, a court that upholds an agency s action in toto has no authority to award further relief to the plaintiff. If the Department prevails on the merits, then Plaintiff has no claim, equitable or otherwise, on which the Court could grant the requested relief. This relief is not sought in Plaintiff s complaint, and Plaintiff s brief cites no authority to support it. And regardless, the availability of this requested relief is irrelevant to whether oral argument should be held in August or September. Additional compliance time at the back end does not make the entry of a preliminary injunction more urgent at the front end for a rule that, under no circumstances, will be applied to any party for the next nine months. 2. Answer Because Plaintiff served the U.S. Attorney on June 9, 2016, the Department s answer is currently due August 8, 2016. See Fed. R. Civ. P. 12(a(2. The parties agree that it is unnecessary for the Department to answer the complaint during the pendency of the preliminary injunction motion, that the Department s duty to answer should be suspended indefinitely, and that the Court, on its own motion or by motion of the parties, may reinstate this duty at a later time. 3. Administrative Record Because the record material relevant to this action involves only a fraction of the voluminous administrative record, the parties propose an approach similar to the local rules in the U.S. District Court for the District of Columbia (which routinely sees large administrative 8
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 9 of 11 records, whereby the government initially files an index to the administrative record. See D.D.C. Local Rule 7(n. If the Court is amenable to this approach, the Department will file an index to the administrative record certifying to the authenticity of its contents no later than August 1, 2016, and the Department will provide the full administrative record to the Plaintiff at that time by a mutually agreeable method. The parties will further stipulate that each may refer to portions of the administrative record as the party deems appropriate for purposes of this action, and each party will submit such portions of the record in the form of an appendix in advance of any preliminary injunction hearing that the Court sets in this matter. CONCLUSION For the reasons set forth above, the Court should grant the parties joint motion for scheduling order. 9
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 10 of 11 Dated: June 30, 2016 CARLTON FIELDS JORDEN BURT, P.A. James F. Jorden (DC No. 37598* jjorden@carltonfields.com Brian P. Perryman (DC No. 491034* bperryman@carltonfields.com 1025 Thomas Jefferson Street, N.W. Suite 400 East Washington, D.C. 20007 Telephone: (202 965-8100 Facsimile: (202 965-8104 CARLTON FIELDS JORDEN BURT, P.A. Michael A. Valerio (CT No. 424045* mvalerio@carltonfields.com John C. Pitblado (CT No. 422221* jpitblado@carltonfields.com One State Street, Suite 1800 Hartford, Connecticut 06103 Telephone: (860 392-5000 Facsimile: (860 392-5058 WALTERS BENDER STROHBEHN & VAUGHAN, P.C. By: /s/ J. Michael Vaughan J. Michael Vaughan (KS Dist. No. 75013 mvaughan@wbsvlaw.com David M. Skeens (KS No. 13994 dskeens@wbsvlaw.com 2500 City Center Square, 1100 Main Kansas City, Missouri 64105 Telephone: (816 421-6620 Facsimile: (816 421-4747 Respectfully submitted, BENJAMIN C. MIZER Principal Deputy Assistant Attorney General JOHN R. PARKER United States Attorney JUDRY L. SUBAR Assistant Director /s/ Galen N. Thorp GALEN N. THORP (VA Bar No. 75517 EMILY S. NEWTON (VA Bar No. 80745 Trial Attorneys United States Department of Justice Civil Division, Federal Programs Branch 20 Massachusetts Avenue, NW Washington, DC 20530 Tel: (202 514-4781; Fax: (202 616-8460 galen.thorp@usdoj.gov emily.s.newton@usdoj.gov Counsel for Defendants Counsel for Plaintiff *Admitted pro hac vice 10
Case 5:16-cv-04083-DDC-KGS Document 14 Filed 06/30/16 Page 11 of 11 CERTIFICATE OF SERVICE The undersigned hereby certifies that on this 30 th day of June, 2016, I electronically filed the above and foregoing document with the Clerk of the Court using the Court s ECF system, which will send notification of said filing to all counsel of record. The undersigned further certifies that the above and foregoing document will be served via Federal Express-Overnight Delivery to the following: Attorney General of the U.S. at Washington D.C. U.S. Department of Justice 950 Pennsylvania Avenue, N.W. Washington, DC 20530-0001 Tom Beall, Acting U.S Attorney for the District of Kansas Jackie Rapstine, Esq. 444 S.E. Quincy, Suite 290 Topeka, KS 66683 /s/ J. Michael Vaughan 11