The U.S. District Court for the District of Columbia will heararguments at 2 p.m. Eastern time Aug. 25 in The NationalAssociation of Fixed Annuities v. Thomas E. Perez.

Erin Sweeney, a Washington, D.C.-based attorney with Miller andChevalier Chartered and a former benefit law specialist with theU.S. Department of Labor under the George W. Bush administration,will be there, monitoring the proceeding on behalf of her clients,along with what she expects will be a “who’s who” among thecountry’s small, and these days, influential band of EmployeeRetirement Income Security Act legal specialists.

Related: The key question in NAFA's lawsuit against theDOL

Among the five lawsuits looking to stay the Labor Department'sfiduciary rule, Sweeney says the claims brought on behalf of fixedindexed annuity providers are uniquely compelling.

“How indexed annuities were treated under the proposed rule wasso different from the final rule,” said Sweeney, referring to factthat the Labor Department moved fixed indexed annuities fromProhibited Transaction Exemption 84-24 to the rule’s Best InterestContract Exemption.

Related: FIAs to take a hit next year, courtesy of DOLfiduciary rule

Under the proposed version of the rule,insurance agents and securities brokers could continue to sellfixed indexed annuities without having to comply with the BestInterest Contract Exemption.

In shifting the sale and distribution of fixed indexed annuitiesto the purview of the Best Interest Contract Exemption, the LaborDepartment took the annuity industry by complete surprise, saidSweeney, echoing what annuity stakeholders have argued since therule was finalized last April.

“If they had any idea DOL was thinking of moving FIAs to the BICbucket, industry would have filed comment letters, and made theirposition known,” said Sweeney. “But they didn’t have the chanceto.”

Since the rule has been finalized, Labor Secretary Thomas Perezhas publicly noted on several occasions the exhaustive outreachregulators made to industry throughout the long rulemakingprocess.

In Sweeney’s opinion, that argument fails with respect to howthe rule regulates fixed indexed annuities. Under theAdministrative Procedure Act, regulators are required to giveaffected stakeholders and industries adequate notice when issuingnew rules. In its suit against the Labor Department, the NationalAssociation of Fixed Annuities alleges “the Department failed toanalyze, discuss, or even acknowledge how moving FIAs into the BICEwill affect the FIA industry,” according to court documents. Fourof the six claims in the NAFA suit are brought under theAdministrative Procedure Act.

Sweeney says that argument is persuasive. “No one saw thiscoming,” she added.

Strongest argument

Of those six claims, Sweeney says the claim that the LaborDepartment rule does the annuity industry irreparable harm isthe strongest argument in the NAFA case, and perhaps the strongestargument of all the claims in the suits against the LaborDepartment.

For fixed indexed annuity providers, and the independentinsurance agents that account for approximately 60 percent of allfixed indexed annuity sales, the rule will “squash” the existingmarket, says Sweeney.

NAFA will argue that the rule’s impact on independent marketingorganizations, which distribute fixed indexed annuities throughchannels of independent insurance agents, will be devastating.

Under the Best Interest Contract Exemption, independentmarketing organizations are not listed among the financialinstitutions eligible to receive commissions on sales of fixedindexed annuities — insurance carriers, broker-dealers, andregistered advisory firms are named as institutions that willqualify for the Best Interest Contract Exemption.

Last year, independent marketing organizations accounted formore than $35 billion in fixed indexed annuity sales. In its suit,NAFA claims the rule dramatically changes the existing distributionmodel for fixed indexed annuities, as insurance carriers will turnto broker-dealers to sell the annuities.

NAFA projects the rule will result in independent marketingorganizations losing 70 percent of their compensation, andestimates that 20,000 independent insurance agents will be forcedto exit the business. “The IMOs that are able to remain in thebusiness will likely face massive spikes in their compliancecosts,” argued NAFA in its court filing.

Related: 4 versions of the Best Interest ContractExemption

A faulty premise, says Labor Department

In its filed response to NAFA’s suit, attorneys from the U.S.Department of Justice and the Labor Department argue that NAFA’sclaim of irreparable harm is based on “a faulty premise and islikewise purely speculative.”

The Best Interest Contract Exemption allows independentmarketing organizations to receive compensation “so long as therequirements of the exemption are fulfilled by the financialinstitution and advisor,” according to court documents filed onbehalf of the Labor Department.

Attorneys for the Labor Department say independent marketingorganizations can continue to market fixed indexed annuities, andreceive compensation, by contracting with an insurance carrier.

But opponents of the Labor Department rule say that carrierswill be reluctant to enter into such an agreement because theywould be unable to monitor the activities of thousands ofindependent insurance agents, and whether or not theirrecommendations on fixed indexed annuities comply with the BestInterest Contract Exemption.

The Labor Department says any decision by carriers to no longerwork with independent marketing organizations would be an“independent” decision of those carriers, “and not directlyattributable to the rule and is thus insufficient to establishirreparable harm.”

Moreover, the Labor Department argues that independent marketingorganizations can seek exemptions to become financial institutionsunder the Best Interest Contract Exemption, as four independentmarketing organizations already have.

Related: DOL fiduciary rule compliance: Advisors not sureabout time line

Judge Randolph Moss

Sweeney, like other Employee Retirement Income SecurityAct experts, is not expecting the D.C. District Court to dragits feet in deciding the case.

A decision will certainly come before the end of the year, ifnot before, she said.

Presiding over the case is U.S. Judge Randolph Moss. A 2014Obama administration appointee, Moss is no stranger toadministrative law matters. Before being confirmed to the bench,the one-time assistant attorney general chaired the regulatory andgovernment affairs department at Wilmer Cutler Pickering Hale andDorr LLP.

“The Administrative Procedures Act is right up his alley,” saidSweeney.

Related: More coverage on the DOL fiduciary rule