5th Circuit rejects states’ bid to defend fiduciary rule, as Dems ask DOL to petition SCOTUS

The U.S. Court of Appeals for the Fifth Circuit has again slammed the door on state attorneys’ general effort to step in and defend the Labor Department’s fiduciary rule.

In a filing this week, the 5th Circuit rejected two requests from attorneys general in California, Oregon, and New York. The states asked the three-judge panel that vacated the fiduciary rule in March to reconsider a previous request to intervene to defend the rule. The Labor Department let pass a deadline to request a rehearing of the March decision.

The states also asked for permission to file for an en banc review for intervention before the full panel of 5th Circuit judges.

Related: AARP, three states vie to defend fiduciary rule in 5th Circuit

Both requests were denied. Chief Judge Carl Stewart, who dissented from the majority in the 2-to-1 March decision vacating the fiduciary rule, also dissented from the majority denying the states’ request to intervene.

But on the question of en banc review, Chief Judge Stewart sided with the majority.

“The court disagrees over the substance of the states’ requests, but they agree over procedural rules,” explained Kevin Walsh, an attorney with The Groom Law Group.

Chief Judge Stewart clearly believes the states should be allowed to intervene to defend the rule, said Walsh. But the question of permitting a petition for en banc review is “a more nerdy, procedural issue,” he added.

Related: Fiduciary rule dies: 5th Circuit denies AARP, states’ bid

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 you look at the court’s local rules, the 5th Circuit regards petitions for en banc review as the most abused motion,” said Walsh. “To tell non-parties to a case that they have the right to seek en banc review would create tension with the court’s local rules.”

No matter how committed the states are to seek standing to defend the fiduciary rule, the attorneys general may be out of options.

“It doesn’t look like there are other avenues for the states,” said Walsh. “All the existing roads would seem closed. Maybe they can craft another filing asking for something they are not allowed to do—the states could try an off road route.”

A mandate from the 5th Circuit that would officially enforce its March decision was expected by May 7.

To date, the mandate has not been issued.

That has led to speculation in the legal community that at least one member of the 5th Circuit ordered the court clerk to delay issuing the mandate to allow the states to exhaust procedural options to intervene.

With the most recent denials to let the states intervene, and allow them to petition for en banc review, the attorneys general may well be out of ammunition.

“I think we will see the mandate issued by the end of the week,” said Walsh.

In order for an en banc review of a case to be granted, a majority of the court’s 15 judges would have to agree to allow it.

In the 5th Circuit, en banc reviews are often requested by judges on the court. The court’s rules allow a judge to circulate an internal ballot to gauge the full court’s interest in rehearing a case en banc. That process is not disclosed to the public.

If the mandate to vacate the fiduciary rule is not issued in the next few days, Walsh said that would indicate that perhaps a judge on the court has requested a ballot to be circulated.

Senate Dems want Labor to petition SCOTUS

Last week, five prominent Democrats on the Senate Health, Employment, Labor and Pensions committee wrote Labor Secretary Alexander Acosta, requesting that the Department petition the Supreme Court to hear an appeal of the 5th Circuit’s decision vacating the fiduciary rule.

The Labor Department’s authority to promulgate the fiduciary rule under the Obama Administration “has been thoroughly reviewed and upheld by numerous courts,” wrote Senators Patty Murray, D-WA, Elizabeth Warren, D-MA, Sherrod Brown, D-OH, Ron Wyden, D-OR, and Cory Booker, D-NJ.

The Labor Department has until June 14 to petition the Supreme Court. If it opts not to, the Senators are asking for an explanation as to why, and clarification on whether the Labor Department has adequately communicated with retirement investors that broker-dealers will not be required to serve as fiduciaries. The lawmakers are asking for an explanation from Sec. Acosta by June 1.

“I would be very surprised if Labor asks the Supreme Court to review the case,” said Mr. Walsh. “There is some chance, but it’s very unlikely.”

Even if Labor does not seek a review, the letter from the Democratic Senators indicates that rules governing the standard of care on investment recommendations will remain on the radar.

In the letter to Sec. Acosta, the lawmakers ask what Labor intends to do to protect investors from conflicted advice it indeed does not petition the Supreme Court.

“The Senators appear to be signaling that the fiduciary rule issue is one that is unlikely to go away,” said Walsh.