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Citing ‘Cascade of Consequences,’ Fiduciary Rule Foes File for Injunction

A group of plaintiffs in the fiduciary regulation litigation have petitioned the court to maintain the status quo pending their appeal.

And, citing “…their urgent need for relief,” the plaintiffs have asked the court to issue a ruling on the motion by March 20, 2017.

The request for injunctive relief (Chamber of Commerce v. Hugler, N.D. Tex., No. 3:16-cv-01476-M, motion for injunction filed 3/10/17) was filed by the group of plaintiffs whose suits had been combined in the 5th Circuit – and whose claims were rejected on Feb. 8, the same day that the Department of Justice had asked the court to hold off making its decision, citing President Trump’s Feb. 3 administrative memorandum directing the Labor Department to reevaluate the likely impact of the rule, noting that “it would not serve judicial economy to issue a ruling at this point.” Judge Lynn’s decision had been expected sometime that week.

The parties said that “immediate, temporary relief is necessary to stay the applicability date pending appeal, allowing the 5th Circuit to consider the legality of the Rule and also allowing the Department itself to complete the review of the Rule mandated by the President, before many of its most costly and irreversible consequences take hold.”

The filing notes that an injunction pending appeal is warranted where:

1. the movant is likely to succeed on the merits on appeal;
2. the movant will be irreparably harmed by denial of the injunction;
3. the opposing party will not be harmed by the injunction; and
4. the public interest favors an injunction.

‘Cascade of Consequences’

The filing said that the allowing the fiduciary rule to proceed would “trigger a cascade of consequences that will be substantial and in some cases irreversible.” Irreversible in that once those compliance decisions have been made, “sunk costs and the risk of customer confusion will make it impracticable for many firms to revert to the status quo ante,” according to the filing.

Moreover, the filing noted that, following President Trump’s Feb. 3 Executive Memorandum, “there is now an even greater likelihood that all of these costs and disruptions will be incurred for naught.”

“There would be no hardship in the Court’s postponing the Rule for a few more months until this litigation is resolved,” the filing continued, “leaving in place for those few months a regulatory framework that the Department had deemed satisfactory for decades.” The filing goes on to note that the Labor Department itself is “…seeking to extend the Rule’s applicability date while it considers whether to rescind or revise the Rule,” and thus that “the public interest heavily favors an injunction so that the serious questions about the Rule’s validity can be resolved without further wasteful, unwarranted, and unrecoverable costs being incurred first.”

Moreover, plaintiffs argued that “In the absence of an injunction staying the Rule, compliance efforts over the coming weeks and months will impose huge financial costs and operational burdens on Plaintiffs and other members of the financial-services industry. An injunction, by contrast, would cost the Department nothing.”