Are the Departments of Justice and Labor going to stop defending the Texas fiduciary rule case? (Photo: AP)

The long-awaited ruling from a Texas federal court on the legality of the Labor Department’s fiduciary rule may be relegated to the dustbin of history before anyone reads the decision.

According to Erin Sweeney, a Washington, D.C.-based attorney with Miller & Chevalier, the Departments of Justice and Labor intend to stop defending the case and are in settlement discussions with plaintiffs and the court.

Judge Barbara Lynn, the chief U.S. district judge for the Northern District of Texas, issued a statement last week saying her decision would be released no later than Friday, February 10.

Judge Lynn’s statement was issued one day before the Trump administration released a draft of a Presidential memorandum that included instructions for the agencies to consider staying defense of pending litigation of the rule in four federal courts. That instruction was stripped from the final memorandum.

Sweeney said she expects an announcement that the agencies will stop defending the rule before Judge Lynn’s decision is released. If that is the case, the public will never view the ruling, which Sweeney said is already written.

Two federal courts have already upheld the rule, and one suit brought by the National Association of Fixed Annuities is being appealed in the District of Columbia Circuit Court.

The claim in Texas, brought by the U.S. Chamber of Commerce and a consortium of trade organizations, is the most wide-ranging of all the cases. The plaintiffs brought eight counts under the suit, alleging the Labor Department exceeded its statutory authority in promulgating the rule, among other claims.

Options for rule’s proponents

 

There is precedent for the government to stop defending lawsuits under Presidential instructions.

In 2011, the Justice Department stopped defending cases brought under the Defense of Marriage Act at the behest of President Obama.

In that case, a third party stepped in to file a motion to intervene, allowing the lawsuits to continue.

A similar action was taken last December, when the Texas AFL-CIO filed a motion to intervene and take over the defense of the Labor Department’s overtime rule, which was blocked by the District Court for the Eastern District of Texas.

In its motion to intervene, the AFL-CIO argued that the intervention by a third party was necessary, given “grave concerns” that the Trump Administration would not forcefully defend the lawsuits against the overtime rule.

Speculation that the Justice and Labor Departments may drop their defense of the fiduciary rule litigation has been common since President Trump’s election in November.

“We’re aware there have been discussion of that and that’s what we’ve been worried about,” said Alison Zieve, director of the litigation group at Public Citizen, an advocacy for consumer rights. Zieve said she was unaware of speculation that the agencies were preparing to drop their defense in the Texas Court.

“We’ve been given no indication the DOJ is backing down so far, but we are in a new normal under this administration,” said Micah Hauptman, financial services counsel at the Consumer Federation of America. “It would be troubling to say the least if the DOJ decided to flip flop.”

Zieve said there are numerous interest groups that would have standing to file for a motion to intervene to continue the defense of the rule, but that she was unaware of formal plans. Any effort to do so may come down to a question of resources and timing. “It would have to be done quickly,” she said.

Notice to delay April 10 implementation date

 

Absent from President Trump’s memorandum instructing the Labor Department to undertake a new economic and legal analysis of the fiduciary rule was a directive to delay the April 10 implementation date. That language was also removed from an earlier draft of the memo.

Sweeney says guidance delaying the implementation date by six months will be issued by the Labor Department, possibly by week’s end. A Labor Department spokesperson reiterated a statement from the agency’s acting Secretary last week, saying “DOL is looking at options to delay the applicability date” of the rule.

A six-month delay is likely to be subject to a short comment period, she Sweeney. That would be followed by a request for information from stakeholders to facilitate the Labor Department’s new economic and legal analysis of the rule.

“There is going to be pressure to get the new analysis of the rule done in a six-month period so Labor doesn’t expose itself to accusations that it is not enforcing the rule,” said Sweeney.

From there, Labor could begin to write a new proposed rule for public comment.

In a client alert issued today, attorneys at Drinker Biddle also said the Labor Department is taking steps to issue a delay.

“We expect an announcement, possibly within a matter of days, that steps are being taken to delay the April 10 applicability date,” the alert said.

Related: See our Fiduciary Rule page