DOL Filing In Thrivent Fiduciary Rule Litigation

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In a court filing as part of the ongoing Thrivent litigation, the DOL discussed various potential claims that could be brought by retirement investors under the fiduciary rule, highlighting the uncertainty that remains for the financial industry until the fate of the proposed 18-month applicability date for certain requirements of the BIC is settled.  The DOL described these potential suits (including a possible suit under ERISA by 401(k) participants in connection with a rollover into an IRA) as unlikely to be brought, but they speculated that if the 18-month delay did not take effect then they could issue a new exemption that would retroactively provide relief from the prohibited transaction rules for firms that are not able to rely on the BIC exemption because of class action waiver language.  This follows another recent indication from the DOL that new prohibited transaction exemptions may be forthcoming under the fiduciary rule.  

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R. ALEXANDER ACOSTA, Secretary of ) Labor, and UNITED STATES )



Civil Action No. 16-cv-03289-SRN- DTS


Pursuant to the Court’s August 24, 2017 order, Defendants, the United States Department of Labor and R. Alexander Acosta, Secretary of Labor (collectively, the “Department”), submit this brief to address whether this case is currently, or shortly may become, moot. Whether this case is now moot appears to present a close and novel question on which Defendants have no definitive position. But because certain events that are likely to occur soon would definitively moot the case, the Department renews its request that the court stay the case during the pendency of the administrative process for this additional reason.

“Article III of the Constitution limits federal-court jurisdiction to ‘cases’ and ‘controversies.’” Campbell–Ewald Co. v. Gomez, 136 S. Ct. 663, 669 (2016) (quoting U.S. Const. art. III, § 2).  “This requirement persists throughout all stages of litigation, so ‘if an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during litigation, the action can no longer proceed and must be dismissed as moot.’” United States v. McHatten, _ F.3d _, 2017 WL 3317527, at *1 (8th Cir. Aug. 4, 2017) (quoting Campbell-Ewald, 136 S. Ct. at 669). “A case becomes moot when the court can no longer grant any effectual relief to a prevailing party due to a change in circumstances.” In re Gretter Autoland, Inc., 864 F.3d 888, 889 (8th Cir. 2017). When a case may be mooted by the defendant’s voluntary cessation of the challenged conduct, courts require the proponent of mootness to show that “the challenged conduct cannot reasonably be expected to start up again.” Friends of the Earth, Inc. v. Laidlaw Envt'l Servs., Inc., 528 U.S. 167, 189 (2000).

If not moot now, this case is likely to become moot before the challenged provision ever applies to Plaintiff. The Department has stated its agreement with Plaintiff that the challenged provision is improper as applied to arbitration agreements,1 see ECF No. 71, and has issued a notice of proposed rulemaking to delay the relevant applicability date by eighteen months in order to provide time to consider public input and possible revisions to the rulemaking, and engage in rulemaking actions to finalize any revisions. See 82 Fed. Reg. 41365 (Aug. 31, 2017) (link).     The Department further issued a bulletin on August 30, 2017, to provide guidance and assurance to Plaintiff and to other interested parties in the meantime. See Field Assistance Bulletin 2017-3 (Aug. 30, 2017). In the bulletin, the Department definitively states that neither the Labor Department nor the Treasury Department will pursue a claim against any fiduciary, based on that fiduciary’s failure to comply with the arbitration provision in the BIC Exemption. The Department further indicates in the bulletin its willingness, if necessary, to consider additional measures including retroactive relief.  See FAB 2017-03, at 2.

The aforementioned developments demonstrate that the Department’s actions in the near future are likely to moot this case. Most clearly, the promulgation of an exemption that does not include the challenged limitation on arbitration agreements would eliminate any prospect of injury to Plaintiff, thereby mooting the case. See Phelps-Roper v. Ricketts,

_ F.3d _, 2017 WL 3442567, at *8 (8th Cir. Aug. 11, 2017). It is also plausible that a significant delay of the challenged condition (such as that proposed), coupled with the proposal of such an exemption, could moot the case even before the proposal is finalized because a purely speculative harm is insufficient to defeat a showing of mootness. See Ayyoubi v. Holder, 712 F.3d 387, 391 (8th Cir. 2013) (rejecting speculative concerns because “the ‘voluntary cessation’ exception to mootness does not allow a plaintiff ‘to rely on theories of Article III injury that would fail to establish standing in the first place.’ Already, LLC [v. Nike, Inc., 568 U.S. 85, 96 (2013)].”); Wallace v. ConAgra Foods, Inc., 747 F.3d 1025, 1031 (8th Cir. 2014) (“[S]peculation and conjecture are not injuries cognizable under Article III.”). If the Department does indeed delay the applicability date for 18 months as it has now proposed, the likelihood that the Department will promulgate a revised exemption before Plaintiff suffers any injury suggests that Plaintiff could not then show the “actual or imminent” harm as required to preserve standing. Wallace, 747 F.3d at 1031 (quoting Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 149 (2010)).

It is less clear whether the case is currently moot. Under some circumstances, a case can be rendered moot by the government’s agreement with a plaintiff about the merits of a case that provides sufficient assurance of non-enforcement—even before a repeal of statutory or regulatory language. See Ragsdale v. Turnock, 841 F.2d 1358, 1365-66 (7th Cir. 1988); see also Harmon v. City of Kansas City, Mo., 197 F.3d 321, 327 (8th Cir. 1999) (finding no standing to seek injunctive relief “[i]n light of the City’s admission that it agrees that [plaintiff’s] activities . . . are fully protected under the constitution”). In this case, however, enforcement does not lie exclusively with the government. Private parties may bring their own civil actions based on the challenged provision, and it is not absolutely clear that the court is unable at this time to provide “any effectual relief.” See Strutton v. Meade, 668 F.3d 549, 556 (8th Cir. 2012) (holding that a case is moot where it is “absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur” (quoting Friends of the Earth, 528 U.S. at 189)). For that reason, the case may not yet be moot.

The Ragsdale standard would dispose of this case if the only possible enforcement of the challenged provision was by the federal government. “[C]essation of the allegedly illegal conduct by government officials has been treated with more solicitude by the courts than similar action by private parties” and “such self-correction provides a secure foundation for a dismissal based on mootness so long as it appears genuine.”     Ragsdale, 841 F.2d at 1365 (citing 13A Wright, Miller & Cooper Federal Practice and Procedure § 3533.7, at 353 (2d ed. 1984)); see also Citizens for Responsibility & Ethics in Wash. (“CREW”) v. U.S. SEC, 858 F. Supp. 2d 51, 62 (D.D.C. 2012) (collecting similar decisions from the 5th, 10th, and 11th Circuits). The Department’s agreement that the challenged provision is improper as applied to arbitration agreements, its policy statement declaring that both it and the Treasury Department will not enforce the challenged provision for arbitration agreements, see Field Assistance Bulletin 2017-3, and its published proposal to delay the relevant applicability date by eighteen months, see 82 Fed. Reg. 41365, would ordinarily provide an “assurance of discontinuation . . . sufficient to establish that there is no reasonable expectation that the unauthorized actions will resume.” CREW, 858 F. Supp. 2d at 62 (rejecting a plaintiff’s speculative concerns where “the Court does not find record evidence to undermine Defendants' claim that the SEC has abandoned its previous policy for preliminary investigative materials and that it is actively developing a new policy that will be approved by NARA”); see also St. Louis Fire Fighters Ass'n Intern. Ass'n of Fire Fighters Local 73 v. City of St. Louis, Mo., 96 F.3d 323, 329-30 (8th Cir. 1996) (finding case moot where city “announced that it would abandon the beleaguered testing procedures entirely, and would develop a new procedure for promotions” because “the district court found that there exists no likelihood of recurrence of the use of the tests”).

But in one small but potentially relevant respect, the current circumstances are different. If the January 1, 2018 applicability date is not delayed as proposed, it is possible that a retirement investor could seek to enforce the Employee Retirement Income Security Act (“ERISA”) against Plaintiff for actions in any period in which the challenged provision of the Best Interest Contract (“BIC”) Exemption becomes fully applicable. It is reasonable to expect that many of the transactions for which Plaintiff provides investment advice involve the assets of “employee benefit plans” within the meaning of Title I of ERISA— such as accounts held in 401k plans that the participant or beneficiary is seeking to roll out of the plan, into a product sold by Plaintiff. See Appellee Br. at 4-5, Chamber of Commerce

v. U.S. Dep’t of Labor, No. 17-10238 (5th Cir. July 27, 2017) (attached as ECF No. 72-1) (defining and explaining the protections afforded to such plans under Title I of ERISA).2 Rollovers of such “employee benefit plan” assets into Plaintiff’s IRAs and annuities are subject to private enforcement in federal lawsuits authorized by ERISA. See 29 U.S.C. § 1132(a). In such a suit, the investor could claim that Plaintiff had engaged in a prohibited transaction and further claim that the BIC Exemption provides no defense because Plaintiff’s contracts had not complied with every requirement of the exemption. Cf. Krueger v. Ameriprise Financial, Inc., No. 11-2781, 2012 WL 5873825, at *15-17 (D. Minn. Nov. 20, 2012) (treating exemptions as affirmative defenses).3

This is not to say that such a federal lawsuit would likely be filed or that it would be successful. No such suit could be filed now, and no such suit could be filed if the applicability date is delayed as proposed. Nor does it seem likely that the plaintiffs’ bar would sue during this transition period over something the Department has concluded is unenforceable.4 But, given that the delay of the applicability date is not an absolute certainty, the limited possibility of such a private suit could make it more difficult to find the case moot. The Eighth Circuit has not resolved the tension between its recognition that speculative claims will not defeat a showing of mootness, see Ayyoubi, 712 F.3d at 391, and its requirement that “interim relief or events have completely and irrevocably eradicated the effects of the alleged violation.” St. Louis Fire Fighters Ass'n, 96 F.3d at 329-30 (quoting County of Los Angeles v. Davis, 440 U.S. 625, 631 (1979)). The Department takes no position on whether the current circumstances are sufficient to moot the case.

But even if this case is not technically moot, the same considerations inherent in mootness are relevant to how this case should proceed.  Plaintiff has never been subject to the challenged provision, and likely never will be. The likelihood that this case will be mooted before Plaintiff is subject to any real consequences counsels in favor of staying this litigation. See, e.g., Bennett v. Int’l Paper Co., No. 05-38, 2005 WL 1459656 (D. Minn. June 21, 2005) (granting a limited stay of proceedings pending the completion of certain aspects of administrative process); Inst. for Wildlife Protection v. U.S. Fish & Wildlife Serv., 2007 WL 4118136, at *11 (D. Or. July 25, 2007) (granting stay of proceedings to promote judicial economy and efficiency where alternate review process was pending that could moot one of the plaintiff's claim for relief).


Accordingly, if the Court concludes that it has jurisdiction, it should grant the Department’s motion for a stay of proceedings and hold this action in abeyance pending actions by the Department that may moot the case.

Dated:  September 7, 2017


Acting Solicitor

G. WILLIAM SCOTT Associate Solicitor


Senior Attorney


Counsel for Appellate and Special Litigation


Attorney for Regulations

United States Department of Labor Office of the Solicitor

Respectfully submitted,


Deputy Assistant Attorney General


Acting United States Attorney


Assistant Director

Civil Division, Federal Programs Branch

/s/ Galen N. Thorp                            GALEN N. THORP (VA Bar # 75517) EMILY NEWTON (VA Bar # 80745)

Trial Attorneys

United States Department of Justice Civil Division, Federal Programs Branch 950 Pennsylvania Avenue NW Washington, D.C. 20530

Tel: (202) 514-4781 / Fax: (405) 553-8885

[email protected] [email protected]

Counsel for Defendants

CASE 0:16-cv-03289-SRN-DTS   Document 101-1   Filed 09/07/17  Page 1 of 1






Case Number: 16-cv-03289-SRN-DTS



I, Galen N. Thorp, certify that the

  • Memorandum titled: Defendants’ Brief on the Issue of Mootness complies with Local Rule 7.1(f).

I further certify that, in preparation of the above document, I:

  • Used the following word processing program and version: Microsoft Word 2013 and that this word processing program has been applied specifically to include all text, including headings, footnotes, and quotations in the following word

I further certify that the above document contains the following number of words: 2253.

Date:  September 7, 2017 /s/ Galen N. Thorp

GALEN N. THORP (VA Bar # 75517)

Trial Attorney

United States Department of Justice Civil Division, Federal Programs Branch 950 Pennsylvania Avenue NW Washington, D.C. 20530

Tel: (202) 514-4781 / Fax: (202) 616-8460

[email protected]

Counsel for Defendants

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