5th Circuit may be considering review of fiduciary rule decision, some speculate

The nearly two-week delay of a mandate from the U.S. Court of Appeals for the Fifth Circuit that would enforce a March decision vacating the Labor Department’s fiduciary rule is “very unusual,” says Jamie Fleckner, chair of the ERISA Litigation Practice at Goodwin.

Only the court knows why it hasn’t issued the mandate, which was expected May 7, Fleckner said.

But its delay suggests that “maybe there is more going on behind the scenes,” he said.

This week, state attorneys general from California, Oregon, and New York asked the 5th Circuit to reconsider a motion to intervene to defend the fiduciary rule.

In April, the Labor Department let pass a deadline to request a rehearing of the March decision. Last week, the three states and the AARP were denied a motion to intervene to continue defending the rule.

The mandate’s delay has the community of ERISA and administrative law attorneys tracking the fiduciary rule scratching their heads, said Fleckner.

“There’s been a good deal of speculation among lawyers that at least one of the judges in the 5th Circuit has intervened with colleagues to see if maybe the court would take the issue up en banc,” he said. “The fact that the mandate hasn’t been issued suggests to me that the states’ and AARP’s request for a rehearing is being taken seriously by at least some members of the court.”

En banc reviews are argued before the full panel of 15 active judges in the 5th Circuit. Ten of those judges were appointed by Republican presidents—four this year by the Trump administration. Another Trump nominee is awaiting confirmation in the Senate.

The 5th Circuit’s chief judge, Carl Stewart, dissented from the majority in the 2-to-1 March decision.

Petitions for rehearing en banc are granted less than 1 percent of the time in the 5th Circuit. The court’s internal operating procedures manual describes the petitions as the “most abused prerogative” of attorneys.

When petitions are granted, they commonly result from a request from a judge on the court, and not from petitioning claimants.

Fleckner said it is likely that Chief Judge Stewart, an appointee of the Clinton Administration, or another judge on the court, has asked the court clerk to delay issuing the mandate until the states and AARP exhaust their opportunities for further review.

The bar for granting motions to intervene is high. Even if the states were allowed to defend the rule, a subsequent petition for en banc review would still be an uphill battle, Fleckner said.

The states are arguing they have standing to intervene because they will lose $58 million in tax revenue from IRA accounts that will drop in value from conflicted advice if the rule is not implemented.

“They are asking an awful lot,” said Fleckner. “They want the court to order the Trump administration to follow a regulation they are backing away from. In this area of economic regulation, it is a significant ask, particularly in the 5th Circuit.”

Still, the delay in the mandate gives Fleckner some pause. “It suggests there is at least one judge that is receptive to the states’ argument.”

Chief Judge Stewart’s dissenting opinion in the March decision was strong, Fleckner said. But he doubts it will be enough to carry the day for the states. He also doubts the Labor Department would have been granted a rehearing, had it requested one.

In the meantime, the fiduciary rule, promulgated under the Obama administration and designed to address investment providers’ conflicts of interest on recommendations to qualified retirement accounts, lives on.

“There’s a significant amount of frustration and confusion in industry about what to do next. Some of that is based on the delay of the mandate,” added Mr. Fleckner. “Industry would welcome some finality.”