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The National Association for Fixed Annuities v. Perez

United States District Court, District of Columbia

November 23, 2016

THOMAS E. PEREZ, Secretary of the United States Department of Labor, et al., Defendants.


          RANDOLPH D. MOSS United States District Judge

         This case is before the Court on plaintiff the National Association for Fixed Annuities' (“NAFA's”) renewed motion for a preliminary injunction staying the applicability date of three new Department of Labor rules regulating conflicts of interest in the market for retirement investment advice and motion for a status conference or expedited ruling. See Dkts. 49, 50. For the reasons explained below, the Court will GRANT NAFA's motion for an expedited ruling, but will DENY NAFA's motion for an injunction.

         I. BACKGROUND

         The statutory and regulatory background to NAFA's challenge to the three rules is discussed in depth in the Court's opinion granting summary judgment in favor of the defendant. See Nat'l Ass'n for Fixed Annuities v. Perez, 2016 WL 6573480 (D.D.C. Nov. 4, 2016) (“NAFA I”); Dkt. 46. The Court will assume a familiarity with that background here, as well as familiarity with the challenges raised in NAFA's complaint.

         After extensive briefing and oral argument, the Court issued an opinion on November 4, 2016, denying NAFA's motions for a preliminary injunction and for summary judgment and granting the Department's motion for summary judgment. Dkt. 46. That same day, the Court entered final judgment in favor of the Department. Dkt. 47. On November 14, 2016, NAFA filed a notice of appeal, a motion for a preliminary injunction to prevent the new rules from taking effect “until at least ten months (or as much as two years) following the final disposition of th[e] litigation, ” Dkt. 49 at 3, and a motion seeking either an “expedited status conference” or “expedited relief” on NAFA's renewed motion for a preliminary injunction, Dkt. 50. The following day, the Court ordered that the Department respond to NAFA's renewed motion for an injunction by 3:00 p.m. on November 17, 2016, but, on the Department's motion, Dkt. 52, the Court extended the Department's time to respond until November 21, 2016. The Department filed its response as directed on November 21, 2016, arguing that issuance of a stay or injunction pending appeal is unwarranted, Dkt. 53, and NAFA filed a reply the following day. Dkt. 54.

         II. ANALYSIS

         “A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter v. Natural Res. Def. Council, 555 U.S. 7, 24 (2008). To secure a preliminary injunction, a plaintiff “must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Id. at 20. Before the Supreme Court's decision in Winter, courts in this circuit applied a “sliding-scale” approach to the preliminary injunction analysis under which “a strong showing on one factor could make up for a weaker showing on another.” Sherley v. Sebelius, 644 F.3d 388, 392 (D.C. Cir. 2011). Since Winter, the D.C. Circuit has hinted on several occasions that “a likelihood of success is an independent, free-standing requirement for a preliminary injunction, ” id. at 393 (quoting Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1296 (2009)), but it “has not yet needed to decide the issue, ” League of Women Voters of United States v. Newby, 838 F.3d 1, 7 (D.C. Cir. 2016). As explained below, this case once again fails to squarely present the question whether the sliding scale approach has survived Winter; under either approach, NAFA is not entitled to a preliminary injunction.

         If the sliding-scale approach is no longer available, little analysis is necessary. The Court has not only already concluded that NAFA is unlikely to prevail on the merits, but has rejected NAFA's claims in a final judgment. See NAFA I, 2016 WL 6573480, at *42. With that prong decided against it, NAFA cannot prevail under an approach that requires that the movant independently satisfy each of the four requirements for issuance of a preliminary injunction.

         But, even assuming that the sliding-scale approach remains available, NAFA has failed to carry its burden of demonstrating entitlement to a preliminary injunction. The sliding-scale approach does not dispense with any of the four factors, but rather asks whether, “taken together, ” all four factors “weigh in favor of the injunction.” Davis, 571 F.3d at 1292. The movant, as a result, need not “show a 51% likelihood of success” on the merits, “if each of the other three factors ‘clearly favors' granting the injunction.” Id. (quoting Wash. Met. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977)). The Court must still, however, consider the movant's likelihood of success on the merits in that overall balance. This means that, if the movant has merely demonstrated that “a serious legal question is presented, ” it bears the heavy burden of demonstrating that “little if any harm will befall other interested persons or the public” and that the movant, in contrast, will suffer irreparable injury if denied preliminary relief. Holiday Tours, 559 F.2d at 844.

         Applying this standard, the Court concludes that NAFA's motion fails for three reasons:

         First, NAFA faces a particularly heavy burden because the Court has already held that NAFA's challenges fail on the merits. The Court, accordingly, is not engaged in the process of predicting how it is likely to decide the case-it has already decided the case. As in any case, the Court of Appeals may reach a different conclusion. But NAFA has not presented any argument that causes this Court to question the result it has already reached or to believe that the Court of Appeals is likely to reach a contrary conclusion. Moreover, NAFA has failed to identify which of the more than a dozen arguments that it raised before this Court it intends to raise on appeal and, more importantly, how the challenges that it intends to raise relate to its contention that its members will suffer irreparable injury in the absence of an injunction pending appeal. A number of NAFA's arguments before this Court, for example, focused on the written contract provision of the Best Interest Contract exemption (“BIC Exemption”), see Dkt. 31 at 61-85; Dkt. 32 at 41-46, 50-75, and, in fact, it now identifies its challenge to that requirement as one of the “[s]erious [l]egal [q]uestions” for appeal, Dkt. 49 at 10. Yet, in its reply brief, NAFA concedes, as it must, that this requirement does not go into effect until January 1, 2018, and it offers no support for the contention that immediate relief is necessary. More generally, in the proceedings before this Court, NAFA challenged an array of different rules and requirements, each of which involves different legal issues and many of which will likely have different consequences for NAFA's members while its appeal is pending. Its current motion, however, fails to explain why it contends that any specific issues that it intends to raise on appeal are likely to succeed-or even raise difficult questions-and, more importantly, how those specific challenges relate to the claims of irreparable injury that it asserts.[1]

         Second, this not a case in which other interested parties or the public will suffer “little if any harm” if the new rules are enjoined pending appeal. The fundamental premise of the challenged rules is that those who provide investment advice to ERISA plans and IRAs on a commission basis have a conflict of interest and that, absent further protections, the plan and IRA owners who they advise will suffer economic losses. It was for this reason that the Department rejected requests-similar to the request that NAFA now makes-that the transition period extend over a period of two to three years. See Final BIC Exemption, 81 Fed. Reg. 21, 002-01, 21, 070 (Apr. 8, 2016). Although the Department did agree that certain requirements would not take effect until January 1, 2018, it required that “certain core protections”-most notably, the requirement that financial institutions and advisors abide by the duties of prudence and loyalty-go into effect on April 20, 2017, in order to address “concerns about ongoing economic harm to [r]etirement [i]nvestors.” Id.

         NAFA disputes that consumers are likely to be harmed by “conflicts of interest” in the sale of fixed indexed annuities, “given the extensive state regulation that has always been in place, ” Dkt. 54 at 3, and, indeed, it goes a step further and argues that “low and middle-income individuals” will likely be harmed by the new rules because their “needs will go underserved or unserved” due to the new rules, Dkt. 49 at 6. Those contentions are unconvincing. State insurance regulators focus on the “suitability” of the products sold by insurance companies; that focus, however, does not ensure that commission-based compensation does not adversely affect the recommendations the retirement investors receive about which of the many “suitable” investment products they should purchase. Moreover, as explained in the Court's earlier opinion, the Department concluded that fixed indexed annuities “are complex products requiring careful consideration of their terms and risks” and that this complexity and risk renders retirement investors particularly reliant on the investment advice they receive and particularly vulnerable to the dangers of conflicted advice. See NAFA I, 2016 WL 6573480 at *34-35 (citing Final BIC Exemption, 81 Fed. Reg. at 21, 018). In light of these reasonable conclusions, to which the Court must defer, see, e.g., U.S. Telecom Ass'n v. FCC, 825 F.3d 674, 697 (D.C. Cir. 2016), and the absence of any significant evidence to the contrary, the Court cannot accept NAFA's contention that “no real harm will result from delaying the applicability of the Rule, ” Dkt. 49 at 22.

         Third, NAFA's showing of irreparable injury is insufficient to overcome its failure to demonstrate a likelihood of success on the merits or that others will suffer little or no injury from issuance of an injunction. The D.C. Circuit “has set a high standard for irreparable injury.” Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006). The injury must be unrecoverable; it must be “both certain and great; [and] it must be actual and not theoretical.” Wisc. Gas Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir. 1985) (per curiam); see also Nat'l Mining Ass'n v. Jackson, 768 F.Supp.2d 34, 52-53 (D.D.C. 2011); see also United States Ass'n of Reptile Keepers, Inc. v. Jewell, 103 F.Supp.3d 133, 163 (D.D.C. 2015) (injury must be “imminent, serious and unrecoverable”). In a case in ...

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