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Thursday, June 21, 2018

Done, Done, on to the Next One(s) - the Fiduciary Rule and Obamacare

First off, I want to use this as an opportunity to direct you to the Foo Fighters' SNL performance of All My Life.  I'm not sure there's ever been a better, more high-energy rock performance.  How the heck can anyone catch lightening in a bottle like that in a one-off live performance?  Wow.

Of course, the climactic moment of the song is the cathartic through-the-roof screaming of, "done, done, on to the next one".  Which brings me to two Obama-era initiatives that are somewhere between done and almost done.

So let's go back to two predictions I made, both of which were wrong in terms of details and, as discussed below, right (totally, in the case of the Fiduciary Rule, and maybe, in the case of Obamacare) in terms of ultimate results.  Better to be lucky than good, I guess.

THE FIDUCIARY RULE

One prediction was that the Trump administration would delay the applicability of the amended Fiduciary Rule and then kill it.  The early Presidential Memorandum on the Rule seemed clearly to presage that fate.

And then, while the DOL was rudderless (the Carl's, Jr. guy just didn't quite make it, and then now-Secretary Acosta was hung up while Gorsuch got confirmed), the Rule somehow bobbed and weaved its way to real, live June 2017 applicability.  Secretary Acosta in his WSJ op-ed opined that the Rule of Law made it too late for the DOL to reverse field (a conclusion with which I heartily disagreed), based on the essentially entrenching record that the DOL had laid down leading up to the Rule's applicability date.  Can you say "deep state"?  Maybeeeee . . .

So it looked like the Rule would make it.  The BIC exemption was essentially eviscerated during extended (effectively forever) transition, and non-ERISA IRA owners had literally no way to enforce any of this whatsoever (unless they could convince the IRS to bring an excise-tax claim - haha) - but there was no denying that the Rule was out there (in fact the basic regulation itself was fully applicable; only the exemptions were dumbed down), and making a fair amount of mischief.

Then came the judicial challenges.  It all seemed like so much tilting at windmills.  Case after case upheld the DOL's authority to issue the Rule.  Put aside for the moment whether the DOL SHOULD have taken this on; the courts were concluding, and many felt, that the DOL COULD take this on.

And then - cue some kind of loud/rousing/shocking music - came the Fifth Circuit decision in the Chamber of Commerce case.  Echoing other courts dealing with other Obama-era regulatory efforts (e.g., the CLO risk-retention case), the court resoundingly decided that the DOL was unreasonable, and arbitrary and capricous, in issuing the rule, and vacated it en toto.

Gee, that was quite the kick in the teeth to the Rule.  And then came the efforts to process what had happened.  Initially, the case seemed significant, but it was, after all, just one circuit.  And other courts seemed more sanguine with the rule.  So this was just another step in the process, right?

But as the case washed over the market, it started to become evident that something big - really big - was afoot.  Notwithstanding some market noise, in memoranda and interviews, that the case was limited in effect to the Fifth Circuit, the static quickly turned to . . . ahem . . . what the rules REALLY are.

In fact, the decision's potential impact was without geographic limitation and was utter and complete.  The key distinction is that the Fifth Circuit wasn't interpreting the rule; rather, it was deciding that the rule was invalid altogether.  The reality started to set in that, when a federal courts vacates a rule and the vacatur goes final, that's it.  Game over.  Rule dead.  Finis. 

And it sorta has to be that way.  If it weren't, how could you proceed based on a court's vacating of a rule, if another court in another circuit could someday resuscitate it!?  In fact, were that possible, you wouldn't even be safe in the circuit in question, because the Supreme Court could someday come to a contrary decision, invalidating the vacatur even in the circuit that did the vacating.

The enormity of the power of a single court here cannot be overstated.  If a rogue district court were to vacate a rule and that vacatur were to become final, the rule is off the books nationally - even if 12 circuit courts think that the rule is not only OK but is the only proper interpretation!!!

Look at it this way.  Let's say someone goes and bulldozes your house.  There may be 12 people that now want to grant your once and former house (apologies to Monty Python) landmark status.  But here's the thing - she's not there (apologies to The Zombies).  That's the situation here: no matter how many courts like the rule, once one final federal decision comes down killing the rule, it's dead.

Is there even any relevance, then, to a split in the circuits?  Well, sorta.  Let's go through it.

First, just to say it, in the case of the fiduciary rule, there probably wasn't a split in the circuits.  The Fifth Circuit killed the rule; other courts had only really said that the rule shouldn't fall based on particular points and arguments.

In any event, though, the relevance of a split or other disagreement is not that the vacatur is somehow compromised by the "other" circuit's (or circuits') opinion(s).  It's that the split or other disagreement might make it more likely that the Supreme Court would grant cert.  Ahhh, but therein lies the rub (apologies to Shakespeare).  If no one asks the Supreme Court to here the case, there's no request for cert. to be granted.

And that's what wound up happening here.

How can that be (apologies to Dr. Suess)?  Well, ordinarily, there's a fail safe.  In particular, the US government is there to file appeals and get the benefit of appropriate potential review, simply by continuing the case.  So, in my rogue-court example, the decision would have then to get by a circuit court and the Supreme Court, depending on the US's sticktoitiveness.

So now we come full circle back to the Trump election.  It may have been thought that the impact of the election on the rule was administrative - that the DOL would kill the rule through the administrative process.

But that's not what happened.  Rather, what happened is that the relevance of the election emerged in the litigation process.  What do I mean?

Look, it's not like the DOL abandoned its rule out of the gate.  Quite clearly, the DOL diligently and ably pursued its defense of the rule through the Fifth Circuit's rendering of its fateful opinion.

But when the Fifth Circuit did the dirty deed, it emerged that the Trump administration had the unilateral ability to get rid of this albatross.  The DOL (and DOJ) could have pursued an appeal if but for no other reason than to protect its general rulemaking authority.  But, really?  With the Presidential Memorandum and all the rhetoric out there, this administration was going to use scarce resources to rescue this rule?  Didn't seem likely.

And didn't happen.

So then the AARP and the states jumped in and asked to take over the case and have it reheard.  And take the federal government's decision-making process away from that government?  Now maybe one could almost imagine some kind of equitable argument were the US simply letting the rule die on the vine at the hands of some unthinking lower court.  But, yet again, that's not what had happened here.  The Fifth Circuit's opinion, right or wrong, is quite thoughtful, well-researched and well-written.  In fact, given the Fifth Circuit's stinging rebuke to the DOL and its thinking and process, Secretary Acosta's beloved Rule of Law now seemed to be pushing towards an abandonment of a rule held to be unreasonable and to be arbitrary and capricious.  It's also worth noting with amusement the Democratic Senators who, with a straight face, wrote a letter arguing that letting the rule die was leading to confusion.  Can you only imagine the Ball of Confusion (apologies to the Tempt's) that would have resulted from a decision by the DOL/DOJ to pursue this further?  (. . . like ERISA's very own li'l Bush v. Gore . . .)

So the Fifth Circuit then flatly rejected the seemingly wistful and seemingly desperate efforts of the AARP and the states to intervene.  And then the states (with the AARP moving on and removing itself from the process) moved to have THAT decision reheard.

And then the deadline for requesting cert. indeed came and went.  And then, earlier today, the mandate (with all of its hilarious grammatical shortcomings) effectuating the vacatur issued.

Dead Yet (apologies to Monty Python, redux)?  Yup.

OBAMACARE

And now for (I'm in a bit of a Monty Python vortex, it would seem) another wild ride.  I'll try to do this one a bit more quickly, but it too really is something.

As a (the?) centerpiece of the package of President Obama's policy initiatives, we got Obamacare.  The way in which the legislation was pushed through the House after Sen. Kennedy passed away, so as to avoid the need for another vote in the Senate, was impressive (Machiavellian?) to say the least  And, by the way, the phrase, "Obamacare", was initially used derisively by those who hated (despised?) the legislation, and then was ingeniously co-opted by the sponsors as a neutral (or maybe even positive) descriptor.  The whole process was incredible.

Then, in Sebelius, the Supreme Court upheld the law as a valid exercise of the United States' taxing power, with Justice Roberts (ironically?) providing the analytical horsepower to get there.  The idea is that the individual-mandate penalty was a tax.

And then, in Burwell, the Court held that the statutory provision that allowed for a subsidy in states with an exchange established by a state also applies in the case of a state with a federal exchange.  That effectively saved the statute, as the statute no longer would have worked sensibly if it were not so interpreted.  Another bullet dodged.  But for how long?

Well, in Tax Reform, they killed the penalty, effective 2019.  Hmm - in what might be quite a "gotcha" embedded in the passage of the statute, Attorney General Sessions then agreed that the elimination of the penalty effectively causes Obamacare to be unconstitutional (in 2019) because the statute will no longer "produce . . . revenue for the Government".

It's arguable that, already, without more, Tax Reform has cut the heart out of Obamacare.  And now it appears to be at least possible that what's left of Obamacare might be altogether unconstitutional, after all?!?  Wow, now wouldn't THAT be something?!?

CONCLUSION

Talk about two long and winding roads!  Wild rides?  Heck, I wonder if Mr. T‎oad ever had THIS much fun.

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