Thrivent Urges Judgment on DOL Rule Anti-Arbitration Provision
July 10, 2017 by Warren S. Hersch
The Department of Labor has been on a winning streak in litigation over its controversial fiduciary rule. But that could soon come to an end if a U.S. district court sides with Thrivent Financial in a complaint the insurer lodged against the DOL last September.
Click HERE to read the original story via Life Annuity Specialist.
In a July 5th letter submitted to Susan Nelson, U.S. District Court Judge for the District of Minnesota, Thrivent requests that the court grant Thrivent’s motion for summary judgment and a permanent injunction. The purpose: To prevent the DOL from seeking a further stay of the litigation pending completion of its review of the rule.
The Thrivent letter was prompted by a brief the DOL filed with the U.S. Court of Appeals for the Fifth Circuit in a separate, 9-party lawsuit indicating that it no longer intends to defend an anti-arbitration provision — the central focus of Thrivent’s complaint against the DOL — of the fiduciary rule’s best interest contract exemption, or BICE. In its brief, the DOL acknowledges that upholding the provision would be “a discriminatory obstacle to arbitration that cannot be harmonized” with existing federal law, thus aligning the DOL’s position with Thrivent’s.
With the two parties now in agreement on the provision, Thrivent argues, the DOL has no basis for seeking an indefinite stay of the case.
The rule prevents fiduciaries subject to the BICE from concluding a binding arbitration agreement with litigants because such settlements would prevent class action claims — the mechanism envisioned by the DOL for enforcing the rule against violators. As per its brief, the DOL now concedes that fiduciaries would be “subject to a regulatory disadvantage” if, to conclude an arbitration applicable to class action claims, they lose access to the BIC exemption and “associated relief” under the rule.
In its letter, Thrivent makes the same argument, noting that the BICE provision “creates a disincentive” for entering into an arbitration agreement. The insurer adds that the provision violates (in addition to the Administrative Procedure Act) the Federal Arbitration Act (FAA), which forbids making a regulatory exemption contingent on forgoing the use of arbitration.
“It is difficult to imagine a clearer-cut case of anti-arbitration discrimination, which the [U.S.] Supreme Court has made clear is prohibited by the FAA,” Thrivent writes, recapping a previously stated position. “The DOL’s policy strongly incentivizes institutions to submit to class actions, which ‘interferes with fundamental attributes of arbitration.’”
Thrivent’s letter adds that a further stay of the case would be “highly prejudicial” to the fraternal benefit society. The insurer’s business model rests in part on the use of private mediation and arbitration for reaching amicable settlement with members when disputes arise. The insurer notes also in its complaint that, because its career agents receive variable compensation on the sale of proprietary products it “cannot continue to do business and offer the [current] full suite of products …without relief…” through the BIC exemption.
The fiduciary rule’s arbitration provision has been a point of contention in other lawsuits filed against the DOL in 2016. Lead complainants in these five cases include: (1) the Indexed Annuity Leadership Council (IALC), (2) Market Synergy Group, (3) the National Association of Fixed Annuities (NAFA); (4) the U.S. Chamber of Commerce, a party to the aforementioned Fifth Circuit case; and (5) The American Council of Life Insurers (ACLI).
The IALC and ACLI suits (the latter joined also by the National Association of Insurance and Financial Advisors (NAIFA), have been consolidated with the Fifth Circuit case, which is now awaiting a ruling from the appellate court’s three-judge panel. The DOL has to date prevailed in all court challenges to the fiduciary rule.
Backing Thrivent in its case against the DOL is The American Fraternal Alliance, which promotes the missions of 64 not-for-profit fraternal benefit society members (Thrivent among them) operating throughout the U.S. and Canada. “The Alliance is supportive of Thrivent’s lawsuit, but we are not issuing a formal statement, as we have not filed as an amicus in the case,” writes Alliance President and CEO Joseph Annotti in a prepared statement.
The district court has not indicated when a ruling in the Thrivent case will be forthcoming. Read Thrivent’s letter to the court here.
