Chris Lazarini Comments on Court’s Preliminary Injunction Against DOL's Enforcement of its "Anti-arbitration" Rule

by Bass, Berry & Sims PLC
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Bass, Berry & Sims attorney Chris Lazarini commented on Thrivent's case seeking to enjoin the U.S. Department of Labor (DOL) from prohibiting the nonprofit's mandatory use of individual dispute resolution processes. Once the DOL conceded that the anti-arbitration conditions violated the Federal Arbitration Act's policy favoring arbitration, the Court granted a preliminary objection against enforcement of the "anti-arbitration" rule. Because of the delay in implementing the rule, the Court also granted the DOL's motion for stay, finding no prejudice to Thrivent in allowing the administrative process to move forward toward a resolution that may resolve the dispute.

Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication.

Thrivent Financial for Lutherans vs. Acosta & U.S. Department of Labor, No. 16-cv-03289 (D. Minn., 11/3/17) 

*In seeking preliminary injunctive relief, the moving party does not need to demonstrate the "certainty" of harm; instead, it must demonstrate only the "likelihood" of harm absent injunctive relief. 

**Nor is the moving party required to show that it will ultimately win on the merits or even that it has a greater than fifty percent chance of winning; instead, it must show only that it has a fair chance of prevailing on the merits. 

***A court may stay an equitable proceeding challenging an invalid rule during the pendency of an administrative process that may resolve the issue without prejudice to the plaintiff, if the party challenging the rule will suffer no prejudice during the stay. 

Thrivent is a Christian-based, non-profit, member-owned fraternal benefit society that offers its members a broad range of insurance and financial products and services. Thrivent's contract with its members requires individual mediation or arbitration to resolve disputes and expressly prohibits representative or class claims of any kind. Thrivent filed this case to enjoin the U.S. Department of Labor ("DOL") from prohibiting Thrivent's mandatory use of individual dispute resolution processes and DOL moved to stay the proceedings.

The parties agree that Thrivent's commission-based compensation of its financial representatives and its sale of proprietary insurance products to individual retirement account holders are "prohibited transactions" under the DOL's fiduciary duty rules. Thrivent argued that it cannot comply with the Best Interest Contract exemption (which would allow it to continue paying commissions) because allowing class action litigation – a specific condition of the exemption – would undermine its core Christian values and damage its reputation and goodwill. The parties initially agreed to proceed to summary judgment; however, after the fiduciary duty rules were delayed, the DOL asked for a stay while it reassessed the exemption and other rules, none of which were yet applicable to Thrivent. Thrivent opposed the stay and requested a dispositive ruling or, at least, a preliminary injunction. 

The Court first considers, but rejects, the concept that the DOL's actions rendered the case moot. Here, an ongoing controversy still exists because the anti-arbitration condition remains in place and changes to it depend on a lengthy rulemaking process involving the actions of different government agencies. The Court proceeds to conduct a traditional injunctive relief analysis and grants Thrivent’s motion. With respect to irreparable harm, it rejects the DOL's argument that the alleged harms are neither certain nor imminent. Instead, "the current state of regulatory limbo" requires Thrivent to expend time and money changing its business model, changes which may irreparably damage its reputation and goodwill and place it at a competitive disadvantage in the marketplace. Thrivent must demonstrate only the "likelihood" of harm, not its "certainty," and has here sufficiently demonstrated the threat of both current and future harm.

The Court has no trouble finding a likelihood of success on the merits because the DOL conceded that the anti-arbitration conditions violated the FAA's policy favoring arbitration. Further, the balance of harms and public interest weigh in Thrivent's favor, as the DOL will suffer no harm and the public interest will be served if the DOL is enjoined from enforcing an invalid rule. The Court therefore grants a preliminary objection against enforcement of the "anti-arbitration" rule. Nevertheless, the Court grants the DOL's motion for stay, finding no prejudice to Thrivent in allowing the administrative process to move forward toward a resolution that may resolve this dispute. 

This case would have been more impactful, and might have been decided differently, had the Court rendered its decision before President Trump directed the DOL to re-examine the impact of the fiduciary duty rule and the subsequent implementation delays, which will likely now extend to July 1, 2019, if not longer. The implementation delay, and the DOL's withdrawal of its opposition to Thrivent’s motion, left a clear path for injunctive relief once the Court cleared the mootness hurdle.

 

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