District Court Grants Thrivent Injunction in Fiduciary Lawsuit Targeting DOL

A decision out of a federal district court in Minnesota represents something of a mixed bag for both the plaintiff, Thrivent Financial for Lutherans, and for Department of Labor defendants.

Even as the U.S. Department of Labor, under the leadership of President Donald Trump and Labor Secretary Alexander Acosta, considers what it will do with the fiduciary rule expansion implemented by the Obama administration, it is also fighting several anti-fiduciary rule lawsuits in various district courts across the U.S.

One such challenge was filed by Thrivent Financial for Lutherans back in October 2016. According to the complaint, the lawsuit challenges only the Department of Labor’s (DOL) adoption of the Best Interest Contract Exemption (BICE) to the extent that it requires Thrivent to abandon its “longstanding commitment to alternative dispute resolution.” The lawsuit is not challenging the validity of the new rule as a whole, plaintiffs argue. 

This week the U.S. District Court for the District of Minnesota ruled on a number of important preliminary motions in the case. Before the court were a motion for a preliminary injunction filed by plaintiff Thrivent Financial for Lutherans; a motion for a stay filed by the Secretary of Labor and the DOL collectively; as well as two cross motions for summary judgment filed by both parties. For the reasons set forth in a newly published order, plaintiffs’ motion for a preliminary injunction is granted; defendants’ motion for a stay is granted; plaintiffs’ motion for summary judgment is denied without prejudice; and defendants’ motion for summary judgment is withdrawn.

As the order lays out, Thrivent brought this suit pursuant to section 702 of the Administrative Procedure Act (APA), 5 U.S.C. Section 702, “challenging a requirement contained in [the new DOL fiduciary] rule which it claims would effectively prohibit it from requiring individual arbitration to resolve disputes with its members.” Thrivent argues that the new requirement “contravenes the Federal Arbitration Act (FAA), which broadly reflects an emphatic federal policy in favor of arbitral dispute resolution.” In its complaint, Thrivent asks the court to declare the requirement in violation of the APA and the FAA, and enter a permanent injunction prohibiting its enforcement.

NEXT: Important details from the decision 

Background information in the decision states that, because most of the members of Thrivent trade infrequently and do not need ongoing financial advice, Thrivent’s financial representatives work under a “transaction-based” compensation model, meaning they receive a commission for each transaction. The court acknowledges Thrivent’s assertion that this model is more appropriate for most of its members than the competing “fee-based” model, where the consumer pays compensation periodically based upon a percentage of the assets under management, or as a flat rate, regardless of whether transactions occur.

Turning to the matter of the BICE, the court notes that since 1999, “Thrivent has required that disputes with members related to insurance products be resolved through its Member Dispute Resolution Program, or MDRP. The MDRP provides for a multi-tiered dispute resolution process, escalating eventually (if necessary) to binding arbitration based on the rules of the American Arbitration Association. Of particular relevance to this matter, the MDRP mandates that all mediation or arbitration be individual in nature—representative or class claims of any sort, whether arbitral or judicial, are expressly barred.”

Thrivent contends that its commitment to individual arbitration is “important to the membership because it reflects Thrivent’s Christian Common Bond, helps preserve members’ fraternal relationships, and avoids protracted and adversarial litigation that could undermine Thrivent’s core mission.” Because its MDRP—which is incorporated into every one of its insurance contracts—requires individual arbitration and expressly bars class or representative claims, Thrivent asserts that it cannot currently comply with the BICE requirements.

The decision on these matters is complicated by the shifting outlook of the DOL, now under the ostensibly anti-regulatory leadership of President Trump: “In light of DOL’s changed position, the court first considers whether it retains jurisdiction to consider the parties’ pending motions. Pursuant to Article III of the Constitution, cases that do not involve actual, ongoing controversies, are moot and must be dismissed for lack of jurisdiction.”

The decision continues: “DOL now concedes that the BIC Exemption’s anti-arbitration condition contravenes the FAA, and asserts that it will not enforce violations of that condition against Thrivent. While DOL acknowledges that its actions in the near future are likely to moot the case, it concedes that the case is not yet moot … DOL also represents that it is coordinating a non-enforcement policy with the IRS. But it appears that these efforts are ‘ongoing,’ and are neither definite nor complete. DOL further recognizes that enforcement of the rule does not rest exclusively with the government, and if the applicability date is not delayed as proposed, a retirement investor could assert an ERISA enforcement claim against Thrivent for actions in any period during which the challenged provision applies.”

NEXT: More from the text of the decision 

The court is satisfied that an actual, ongoing controversy exists between the parties. Although the court "recognizes the presumption of good faith given to governmental actors when voluntary cessation is involved, the anti-arbitration condition remains in place, the potential actions of two different agencies are implicated, the rulemaking process can be lengthy, and Thrivent requires certainty for purposes of advance planning and legal compliance.”

After determining the case is not moot, the court steps through various factors to determine whether preliminary injunctive relief is warranted. The court finds that Thrivent “has sufficiently demonstrated the threat of irreparable harm, both now and in the future.” This is so because, “notwithstanding DOL’s current efforts to extend the BIC Exemption’s applicability date, its own guidance recognizes that regulated entities such as Thrivent may incur undue expense to comply with conditions or requirements that DOL ultimately determines to revise or repeal. While monetary loss alone does not warrant injunctive relief, the current state of regulatory limbo threatens Thrivent with harm that cannot be remedied monetarily.”

Further supporting the decision to issue injunctive relief, as noted, DOL concedes that the anti-arbitration condition violates the FAA. Thus the court finds that Thrivent “is likely to succeed on the merits.” In addition, “consideration of the remaining factors of the balance of harms and public interest also weigh in Thrivent’s favor. DOL will suffer no harm, and the public interest will be served, if it is enjoined from enforcing an invalid rule.”

Important to note, given DOL’s reassessment of the challenged provision of the BICE, the court “finds that DOL has sufficiently demonstrated the need for a stay.” The court says staying this matter will allow the administrative process to fully develop, possibly resolving this dispute, and thereby promoting judicial economy. “Moreover, in light of Thrivent’s injunctive relief, awarded above, Thrivent will not be prejudiced by the entry of a stay at this time,” the court says. “In fact, Thrivent expressed its willingness to enter into a stay if the Court were to grant its Motion for a Preliminary Injunction.”

Finally, the court clarifies that DOL’s pending motion for summary judgment is withdrawn, and in light of the court’s rulings concerning injunctive relief and a stay, the court denies plaintiff’s motion for summary judgment without prejudice.