Challengers of the fiduciary rule are hoping three strikes doesn't put them out of the game.
In prior federal venues, opponents to the rule were slapped down. In the most recent defeat, on Dec. 15, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruled against the challengers.
But in a Dallas federal court case, plaintiffs including the U.S. Chamber of Commerce, FSI and SIFMA, may remain optimistic.
Presiding in that litigation is Chief District Judge Barbara Lynn.
A well-respected jurist with 17 years on the bench, Lynn has a reputation for writing opinions that adhere to precedents but persuade others of her viewpoint.
She has presided over headline-grabbing litigation, including a corruption case against a former Dallas mayor pro tem and a class action securities case against Halliburton. The latter led to a ruling by Lynn, in which she adhered to a U.S. Court of Appeals for the Fifth Circuit precedent. But, in the same ruling, she raised questions about that precedent. Her analysis ultimately persuaded the U.S. Supreme Court to reverse the Fifth Circuit, citing language from Lynn's opinion.
After a Nov. 17 hearing in her Dallas court room, some concluded Lynn might vacate the proposed rule — despite her warnings that spectators not read into her inquiries. Others focused on the judge's apparent caution.
"The judge clearly stated that it was not the court's job to second-guess the agency's decision-making — the court should only look at whether the agency's conclusions were justified — this will be the critical issue that will determine the outcome of the case," says William Nelson, public policy counsel for the CFP Board, which supports the Department of Labor's regulation and who was present during the hearing.
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A federal judge categorically rejects claims by an insurance group that the agency overreached. The ruling "sets the tone" for other suits nationwide, an investor advocate says.
November 5 -
"There are ways to potentially be cute with it. You could potentially cut out retirement business from the back-end bonuses," says an ex-Merrill Lynch executive who works in the independent space. "Cute doesn't usually work when it comes to regulators."
November 2 -
Unlike its rival, Morgan will keep commission-based retirement accounts under the new regulation's best interest contract exemption.
October 26
PREDICTIVE RULING
Lynn's rulings are often "predictive of how the law might go in the future, not what it is, but what it should be," says Nina Cortell, a partner at Dallas law firm Haynes and Boone, also with no client in this case, but who has appeared frequently before Lynn.
In the most recent Dallas Bar Association survey of lawyers' opinions of judges, Lynn's name generated almost 50 more responses — for a total of more than 200 — than those of the other sitting Dallas federal judges; 90% of respondents said Lynn was prepared for hearings and trials; 88% said she demonstrated adequate knowledge of the law; and 83% approved of her overall performance
"She is one of the most well-respected district court judges. She is extremely, extremely intelligent and very fair," says Jeffrey Tillotson, a Dallas lawyer, not representing any clients in this case, but who has appeared before Lynn for years, while serving as lead lawyer in some of the most complex litigation in the state.
Lynn did not respond to written questions for this story or agree to an interview.
At the recent hearing, she cautioned both sides that her decision might not come before the rule's April 10 implementation date and suggested that a motion for a stay might be in order.
"If the judge rules in favor of the DoL rule, it would be the third district court ruling to uphold the rule. This would be a significant victory for retirement investors who would receive fiduciary level advice for their retirement savings," Nelson says.
But, he adds: "If the judge rules against the DoL it could position the case for a possible split in the circuit courts regarding the validity of the rule, which could in turn position the case for a potential appeal to the Supreme Court."
For his part, Tillotson says no one could accurately predict Lynn's ruling based on questions she asks during a hearing.
"She's not trying to telegraph her ruling," he says.
If the case indeed makes it to the nation's highest court, Lynn may have an opportunity to write an opinion that helps the guide the Supreme Court justices.
"I understand my task here is not to just engage in a flurry of second-guessing here about, well, 'If I were okaying this, this is what I would have looked at.' The question is whether the conclusions are justified by what was done and whether there were things that the regulatory scheme mandates be done that were not done. It doesn't have to be perfect," she said. "There's plenty of cases that say that."
