   Case: 17-10238      Document: 00514388699              Page: 1       Date Filed: 03/15/2018




      IN THE UNITED STATES COURT OF APPEALS
               FOR THE FIFTH CIRCUIT United States Court of Appeals
                                              Fifth Circuit

                                                                                 FILED
                                                                             March 15, 2018
                                      No. 17-10238
                                                                              Lyle W. Cayce
                                                                                   Clerk
CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA;
FINANCIAL SERVICES INSTITUTE, INCORPORATED; FINANCIAL
SERVICES ROUNDTABLE; GREATER IRVING-LAS COLINAS CHAMBER
OF COMMERCE; HUMBLE AREA CHAMBER OF COMMERCE, doing
business as Lake Houston Chamber of Commerce; INSURED RETIREMENT
INSTITUTE; LUBBOCK CHAMBER OF COMMERCE; SECURITIES
INDUSTRY AND FINANCIAL MARKETS ASSOCIATION; TEXAS
ASSOCIATION OF BUSINESS,

          Plaintiffs - Appellants

                          v.

UNITED STATES DEPARTMENT OF LABOR; R. ALEXANDER ACOSTA,
SECRETARY, U.S. DEPARTMENT OF LABOR,

          Defendants - Appellees

                    ------------------------------------------------------------------------

AMERICAN COUNCIL OF LIFE INSURERS; NATIONAL ASSOCIATION
OF INSURANCE AND FINANCIAL ADVISORS; NATIONAL
ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - TEXAS;
NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL
ADVISORS - AMARILLO; NATIONAL ASSOCIATION OF INSURANCE
AND FINANCIAL ADVISORS - DALLAS; NATIONAL ASSOCIATION OF
INSURANCE AND FINANCIAL ADVISORS - FORT WORTH; NATIONAL
ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - GREAT
SOUTHWEST; NATIONAL ASSOCIATION OF INSURANCE AND
FINANCIAL ADVISORS - WICHITA FALLS;

          Plaintiffs - Appellants
     Case: 17-10238       Document: 00514388699             Page: 2       Date Filed: 03/15/2018



                                        No. 17-10238
                            v.

UNITED STATES DEPARTMENT OF LABOR; R. ALEXANDER ACOSTA,
SECRETARY, U.S. DEPARTMENT OF LABOR,

              Defendants - Appellees

                       -----------------------------------------------------------------------

INDEXED ANNUITY LEADERSHIP COUNCIL; LIFE INSURANCE
COMPANY OF THE SOUTHWEST; AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY; MIDLAND NATIONAL LIFE INSURANCE
COMPANY; NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
INSURANCE,

              Plaintiffs - Appellants

                            v.

R. ALEXANDER ACOSTA, SECRETARY, U.S. DEPARTMENT OF LABOR;
UNITED STATES DEPARTMENT OF LABOR,

              Defendants - Appellees


                   Appeals from the United States District Court
                        for the Northern District of Texas


Before STEWART, Chief Judge, and JONES and CLEMENT, Circuit Judges.
EDITH H. JONES, Circuit Judge:
       Three business groups 1 filed suits challenging the “Fiduciary Rule”
promulgated by the Department of Labor (DOL) in April 2016. The Fiduciary
Rule is a package of seven different rules that broadly reinterpret the term



       1Suits were separately filed by groups headed by the U.S. Chamber of Commerce, the
American Council of Life Insurers, and the Indexed Annuity Leadership Council. The suits
were consolidated and jointly decided by the district court in the Northern District of Texas.
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“investment advice fiduciary” and redefine exemptions to provisions
concerning fiduciaries that appear in the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, 88 Stat. 829 (ERISA), codified as
amended at 29 U.S.C. § 1001 et seq, and the Internal Revenue Code, 26 U.S.C.
§ 4975. The stated purpose of the new rules is to regulate in an entirely new
way hundreds of thousands of financial service providers and insurance
companies in the trillion dollar markets for ERISA plans and individual
retirement accounts (IRAs). The business groups’ challenge proceeds on
multiple grounds, including (a) the Rule’s inconsistency with the governing
statutes, (b) DOL’s overreaching to regulate services and providers beyond its
authority, (c) DOL’s imposition of legally unauthorized contract terms to
enforce the new regulations, (d) First Amendment violations, and (e) the Rule’s
arbitrary and capricious treatment of variable and fixed indexed annuities.
      The district court rejected all of these challenges. Finding merit in
several of these objections, we VACATE the Rule.
                             I. BACKGROUND
      As might be expected by a Rule that fundamentally transforms over fifty
years of settled and hitherto legal practices in a large swath of the financial
services and insurance industries, a full explanation of the relevant
background is required to focus the legal issues raised here.
      Congress passed ERISA in 1974 as a “comprehensive statute designed to
promote the interests of employees and their beneficiaries in employee benefit
plans.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983). Title I of ERISA
confers on the DOL far-reaching regulatory authority over employer- or union-
sponsored retirement and welfare benefit plans. 29 U.S.C. §§ 1108(a)-(b), 1135.
A “fiduciary” to a Title I plan is subject to duties of loyalty and prudence.
29 U.S.C. § 1104(a)(1)(A)-(B).    Fiduciaries may not engage in several
“prohibited transactions,” including transactions in which the fiduciary
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receives a commission paid by a third party or compensation that varies based
on the advice provided. 29 U.S.C. § 1106(b)(3). ERISA authorizes lawsuits by
the DOL, plan participants or beneficiaries against fiduciaries to enforce these
duties. 29 U.S.C. § 1132(a).
      ERISA Title II created tax-deferred personal IRAs and similar accounts
within the Internal Revenue Code. 26 U.S.C. § 4975(e)(1)(B). 2 Title II did not
authorize DOL to supervise financial service providers to IRAs in parallel with
its power over ERISA plans. Moreover, fiduciaries to IRAs are not, unlike
ERISA plan fiduciaries, subject to statutory duties of loyalty and prudence.
Instead, Title II authorized the Treasury Department, through the IRS, to
impose an excise tax on “prohibited [i.e. conflicted] transactions” involving
fiduciaries of both ERISA retirement plans and IRAs. 26 U.S.C. § 4975 (a), (b),
(f)(8)(E). DOL was authorized only to grant exemptions from the prohibited
transactions provision, 29 U.S.C. § 1108(a), 26 U.S.C. § 4975(c)(2), and to
“define accounting, technical and trade terms” that appear in both laws,
29 U.S.C. § 1135. Title II did not create a federal right of action for IRA
owners, but state law and other remedies remain available to those investors.
      The critical term “fiduciary” is defined alike in both Title I, 29 U.S.C.
§ 1002(21)(A), and Title II, 26 U.S.C. § 4975(e)(3). In Title I, fiduciaries are
subject to comprehensive DOL regulation, while in Title II individual plans,
they are subject to the prohibited transactions provisions. The provision states
that “a person is a fiduciary with respect to a plan to the extent he
   • exercises any discretionary authority or discretionary control
     respecting management of such plan or exercises any authority or
     control respecting management or disposition of its assets,”
     29 U.S.C. § 1002(21)(A)(i);


      2 Title II also covers individual retirement annuities, health savings accounts, and
certain other tax-favored trusts and plans. See 26 U.S.C. § 4975(e)(1)(C)-(F). For
convenience, all such plans are designated “IRAs” in this opinion.
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                                  No. 17-10238


   • “renders investment advice for a fee or other compensation, direct
     or indirect, with respect to any moneys or other property of such
     plan, or has any authority or responsibility to do so,”
     29 U.S.C. § 1002(21)(A)(ii); or


   • “has any discretionary authority or discretionary responsibility in
     the administration of such plan.” 29 U.S.C. § 1002(21)(A)(iii).


      Subsection ii of the “fiduciary” definition is in issue here.

      In 1975, DOL promulgated a five-part conjunctive test for determining
who is a fiduciary under the investment-advice subsection. Under that test,
an investment-advice fiduciary is a person who (1) “renders advice…or makes
recommendation[s] as to the advisability of investing in, purchasing, or selling
securities or other property;” (2) “on a regular basis;” (3) “pursuant to a mutual
agreement…between such person and the plan;” and the advice (4) “serve[s] as
a primary basis for investment decisions with respect to plan assets;” and (5) is
“individualized . . . based on the particular needs of the plan.” 29 C.F.R.
§ 2510.3-21(c)(1) (2015).
      The 1975 regulation captured the essence of a fiduciary relationship
known to the common law as a special relationship of trust and confidence
between the fiduciary and his client. See, e.g., GEORGE TAYLOR BOGERT, ET AL.,
TRUSTS & TRUSTEES § 481 (2016 update). The regulation also echoed the then
thirty-five-year old distinction drawn between an “investment adviser,” who is
a fiduciary regulated under the Investment Advisers Act, and a “broker or
dealer” whose advice is “solely incidental to the conduct of his business as a
broker or dealer and who receives no special compensation therefor.” 15 U.S.C.
§ 80b-2(a)(11)(C).   Thus, the DOL’s original regulation specified that a
fiduciary relationship would exist only if, inter alia, the adviser’s services were


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                                 No. 17-10238
furnished “regularly” and were the “primary basis” for the client’s investment
decisions. 29 C.F.R. § 2510.3-21(c)(1) (2015).
      In the decades following the passage of ERISA, the use of participant-
directed IRA plans has mushroomed as a vehicle for retirement savings.
Additionally, as members of the baby-boom generation retire, their ERISA
plan accounts will roll over into IRAs. Yet individual investors, according to
DOL, lack the sophistication and understanding of the financial marketplace
possessed by investment professionals who manage ERISA employer-
sponsored plans.     Further, individuals may be persuaded to engage in
transactions not in their best interests because advisers like brokers and
dealers and insurance professionals, who sell products to them, have “conflicts
of interest.” DOL concluded that the regulation of those providing investment
options and services to IRA holders is insufficient.       One reason for this
deficiency is the governing statutory architecture:
      Although ERISA’s statutory fiduciary obligations of prudence and
      loyalty do not govern the fiduciaries of IRAs and other plans not
      covered by ERISA, these fiduciaries are subject to prohibited
      transaction rules under the [Internal Revenue] Code. The
      statutory exemptions in the Code apply and the [DOL] has been
      given the statutory authority to grant administrative exemptions
      under the Code. [footnote omitted] In this context, however, the
      sole statutory sanction for engaging in the illegal transactions is
      the assessment of an excise tax enforced by the [IRS].

Definition of Fiduciary, 81 Fed. Reg. at 20946, 20953 (Apr. 8, 2015) (to be
codified at 29 C.F.R. pts. 2509, 2510, 2550).
      A second reason for the gap lies in the terms of the 1975 regulation’s
definition of an investment advice fiduciary. In particular, by requiring that
the advice be given to the customer on a “regular basis” and that it must also
be the “primary basis” for investment decisions, the definition excluded one-
time transactions like IRA rollovers. As DOL saw it, the term “adviser” should

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                                  No. 17-10238
extend well beyond investment advisers registered under the Investment
Advisers Act of 1940 or under state law. Semantically, the term “investment
advice fiduciary” can include “an individual or entity who is, among other
things, a representative of a registered investment adviser, a bank or similar
financial institution, an insurance company, or a broker-dealer.” 81 Fed. Reg.
at 20946 n.1. Further, “[u]nless they are fiduciaries, . . . these consultants and
advisers are free under ERISA and the Code, not only to receive such conflicted
compensation, but also to act on their conflicts of interest to the detriment of
their customers.” 81 Fed. Reg. at 20956.
      Beginning in 2010, DOL set out to fill the perceived gap. The result,
announced in April 2016, was an overhaul of the investment advice fiduciary
definition, together with amendments to six existing exemptions and two new
exemptions to the prohibited transaction provision in both ERISA and the Code
(collectively, as previously noted, the Fiduciary Rule). The Fiduciary Rule is
of monumental significance to the financial services and insurance sectors of
the economy. The package of regulations and accompanying explanations,
although full of repetition, runs 275 pages in the Federal Register. DOL
estimates that compliance costs imposed on the regulated parties might
amount to $31.5 billion over ten years with a “primary estimate” of $16.1
billion.    81 Fed. Reg. at 20951. In a novel assertion of DOL’s power, the
Fiduciary Rule directly disadvantages the market for fixed indexed annuities
in comparison with competing annuity products. Finally, with unintentional
irony, DOL pledged to alleviate the regulated parties’ concerns about
“compliance and interpretive issues” following this “issuance of highly
technical or significant guidance” by drawing attention to its “broad assistance
for regulated parties on the Affordable Care Act regulations . . . .” 81 Fed. Reg.
at 20947.


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                                      No. 17-10238
                                II. THE FIDUCIARY RULE
       Now to the relevant highlights of the Fiduciary Rule. 3 In lieu of the 1975
definition of an investment advice fiduciary, the Fiduciary Rule provides that
an individual “renders investment advice for a fee” whenever he is
compensated in connection with a “recommendation as to the advisability of”
buying, selling, or managing “investment property.”                  29 C.F.R. § 2510.3-
21(a)(1) (2017).     A fiduciary duty arises, moreover, when the “investment
advice” is directed “to a specific advice recipient . . . regarding the advisability
of a particular investment or management decision with respect to” the
recipient’s investment property. 29 C.F.R. § 2510.3-21(a)(2)(iii) (2017).
       To be sure, the new rule purports to withdraw from fiduciary status
communications that are not “recommendations,” i.e., those in which the
“content, context, and presentation” would not objectively be viewed as “a
suggestion that the advice recipient engage in or refrain from taking a
particular course of action.” 29 C.F.R. § 2510.3-21(b)(1) (2017). But the more
individually tailored the recommendation is, the more likely it will render the
“adviser” a fiduciary. Id.
       Critically, the new definition dispenses with the “regular basis” and
“primary basis” criteria used in the regulation for the past forty years.
Consequently,      it   encompasses       virtually    all   financial    and    insurance
professionals who do business with ERISA plans and IRA holders.
Stockbrokers and insurance salespeople, for instance, are exposed to
regulations including the prohibited transaction rules. The newcomers are
thus barred, without an exemption, from being paid whatever transaction-


       3The original definition of an investment advice fiduciary occupied one page in the
Federal Register. Definition of the Term “Fiduciary,” 40 Fed. Reg. 50842, 50842-43 (Oct. 31,
1975). The revised definition is over five pages long, and the associated exemption rules are
complex. The issues raised here can, however, be addressed by paraphrasing the critical
language of the regulations, as all parties have done.
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                                       No. 17-10238
based commissions and brokerage fees have been standard in their industry
segments because those types of compensation are now deemed a conflict of
interest.
       The second novel component of the Fiduciary Rule is a “Best Interest
Contract Exemption,” (BICE) which, if adopted by “investment advice
fiduciaries,” allows them to avoid prohibited transactions penalties. 81 Fed.
Reg. 21002 (Apr. 8, 2016), corrected at 81 Fed. Reg. 44773 (July 11, 2016), and
amended by 82 Fed. Reg. 16902 (Apr. 7, 2017). The BICE and related
exemptions were promulgated pursuant to DOL’s authority to approve
prohibited transaction exemptions (PTE’s) for certain classes of fiduciaries or
transactions. 29 U.S.C. § 1108(a), 26 U.S.C. § 4975(c)(2). 4 The BICE was
intended to afford such relief because, as DOL candidly acknowledged, the new
standard could “sweep in some relationships that are not appropriately
regarded as fiduciary in nature and that the Department does not believe
Congress intended to cover as fiduciary relationships.” 81 Fed. Reg. at 20948.
        The BICE supplants former exemptions with a web of duties and legal
vulnerabilities. To qualify for a BIC Exemption, providers of financial and
insurance services must enter into contracts with clients that, inter alia, affirm
their fiduciary status; incorporate “Impartial Conduct Standards” that include
the duties of loyalty and prudence;             “avoid[] misleading statements;” and
charge no more than “reasonable compensation.” As noted above, Title II
service providers to IRA clients are not statutorily required to abide by duties
of loyalty and prudence.          Yet, to qualify as not being “investment advice
fiduciaries” per the new definition, the financial service providers must deem



       4  Exemptions can be “conditional” or “unconditional,” but they must be
“(1) administratively feasible, (2) in the interests of the plan and of its participants and
beneficiaries, and (3) protective of the rights of participants and beneficiaries of such plan.”
29 U.S.C. § 1108(a); 26 U.S.C. § 4975(c)(2).
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themselves fiduciaries to their clients. In addition, the contracts may not
include exculpatory clauses such as a liquidated damages provision nor may
they require class action waivers. DOL contends that the enforceability of the
BICE-created contract, “and the potential for liability” it offers, were “central
goals of this regulatory project.” 81 Fed. Reg. at 21021, 21033. In these
respects, a BIC Exemption comes at a high price. 5
      The third relevant element of the Fiduciary Rule is the amended
Prohibited Transaction Exemption 84-24. Since 1977, that exemption had
covered transactions involving insurance and annuity contracts and permitted
customary sales commissions where the terms were at least as favorable as
those at arm’s-length, provided for “reasonable” compensation, and included
certain disclosures.     49 Fed. Reg. 13208, 13211 (Apr. 3, 1984); see 42 Fed.
Reg. 32395, (June 24, 1977) (precursor to PTE 84-24). As amended in the
Fiduciary Rule package, PTE 84-24 now subjects these transactions to the
same Impartial Conduct Standards as in the BICE exemption. 81 Fed. Reg.
21147 (Apr. 8, 2016), corrected at 81 Fed. Reg. 44786 (July 11, 2015), and
amended by 82 Fed. Reg. 16902 (Apr. 7, 2017).               But DOL removed fixed
indexed annuities from the more latitudinarian PTE 84-24, leaving only fixed-
rate annuities within its scope. In practice, this                    action places a
disproportionate burden on the market for fixed indexed annuities, as opposed
to competing annuity products.




      5  DOL also created a new Class Exemption for Principal Transactions in Certain
Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs that
is “functionally identical” to the BICE and allows financial institutions to engage in
otherwise-prohibited transactions while receiving compensation. 81 Fed. Reg. 21089 (Apr. 8,
2016), corrected at 81 Fed. Reg. 44784 (July 11, 2016), and amended by 82 Fed. Reg. 16902
(Apr. 7, 2017). As the parties recommended, our discussion treats these provisions alike by
referencing BICE alone for convenience.
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                                 No. 17-10238
      The President has directed DOL to reexamine the Fiduciary Rule and
“prepare an updated economic and legal analysis” of its provisions, 82 Fed.
Reg. 9675 (Feb. 3, 2017), and the effective date of some provisions has been
extended to July 1, 2019. The case, however, is not moot. The Fiduciary Rule
has already spawned significant market consequences, including the
withdrawal of several major companies, including Metlife, AIG and Merrill
Lynch from some segments of the brokerage and retirement investor market.
Companies like Edward Jones and State Farm have limited the investment
products that can be sold to retirement investors. Confusion abounds—how,
for instance, does a company wishing to comply with the BICE exemption
document and prove that its salesman fostered the “best interests” of the
individual retirement investor client? The technological costs and difficulty of
compliance compound the inherent complexity of the new regulations.
Throughout the financial services industry, thousands of brokers and
insurance agents who deal with IRA investors must either forgo commission-
based transactions and move to fees for account management or accept the
burdensome regulations and heightened lawsuit exposure required by the
BICE contract provisions. It is likely that many financial service providers will
exit the market for retirement investors rather than accept the new regulatory
regime.
      Further, as DOL itself recognized, millions of IRA investors with small
accounts prefer commission-based fees because they engage in few annual
trading transactions. Yet these are the investors potentially deprived of all
investment advice as a result of the Fiduciary Rule, because they cannot afford
to pay account management fees, or brokerage and insurance firms cannot
afford to service small accounts, given the regulatory burdens, for management
fees alone.


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                                     No. 17-10238
       The district court rejected all of the appellants’ challenges to the
Fiduciary Rule. Timely appeals were filed.
                                  III. DISCUSSION
       Appellants pose a series of legal issues, all of which are reviewed de novo
on appeal, Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 601 (5th Cir.
2000), and nearly all of which we must address. The principal question is
whether the new definition of an investment advice fiduciary comports with
ERISA Titles I and II. Alternatively, is the new definition “reasonable” under
Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984) and not violative of
the Administrative Procedures Act (APA), 5 U.S.C. § 706(2)(A) (2016)?
       Beyond that threshold are the questions whether the BICE exemption,
including its impact on fixed indexed annuities, asserts affirmative regulatory
power inconsistent with the bifurcated structure of Titles I and II and is invalid
under the APA.        Further, are the required BICE contractual provisions
consistent with federal law in creating implied private rights of action and
prohibiting certain waivers of arbitration rights? 6
           A. The Fiduciary Rule Conflicts with the Text of 29 U.S.C.
             Sec. 1002(21)(A)(ii); 26 U.S.C. Sec. 4975(e)(3)(B).

       DOL expanded the statutory term “fiduciary” by redefining one out of
three provisions explaining the scope of fiduciary responsibility under ERISA
and the Internal Revenue Code. The second of these three provisions states
that
       a person is a fiduciary with respect to a plan to the extent . . . he
       renders investment advice for a fee or other compensation, direct
       or indirect, with respect to any moneys or other property of such
       plan, or has any authority or responsibility to do so[.]


       6 Given these other grounds for rejecting the Fiduciary Rule, and consistent with
principle of constitutional avoidance, we need not address the First Amendment issue raised
by one of the appellants.
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29 U.S.C. § 1002(21)(A)(ii); 26 U.S.C. § 4975(e)(3)(B). For the past forty years,
DOL has considered the hallmarks of an “investment advice” fiduciary’s
business to be its “regular” work on behalf of a client and the client’s reliance
on that advice as the “primary basis” for her investment decisions. 29 C.F.R.
§ 2510.3-21(c)(1) (2015).   The Fiduciary Rule’s expanded coverage is best
explained by variations of the following hypothetical advanced by the Chamber
of Commerce: a broker-dealer otherwise unrelated to an IRA owner tells the
IRA owner, “You’ll love the return on X stock in your retirement plan, let me
tell you about it” (the “investment advice”); the IRA owner purchases X stock;
and the broker-dealer is paid a commission (the “fee or other compensation”).
Based on this single sales transaction, as DOL agrees, the broker-dealer has
now been brought within the Fiduciary Rule. The same consequence follows
for insurance agents who promote annuity products.
      Expanding the scope of DOL regulation in vast and novel ways is valid
only if it is authorized by ERISA Titles I and II. A regulator’s authority is
constrained by the authority that Congress delegated it by statute. Where the
text and structure of a statute unambiguously foreclose an agency’s statutory
interpretation, the intent of Congress is clear, and “that is the end of the
matter; for the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842-43.
To decide whether the statute is sufficiently capacious to include the Fiduciary
Rule, we rely on the conventional standards of statutory interpretation and
authoritative Supreme Court decisions. City of Arlington v. FCC, 133 S. Ct.
1863, 1868 (2013) (quoting Chevron, 467 U.S. at 842-43). The text, structure,
and the overall statutory scheme are among the pertinent “traditional tools of
statutory construction.” See Chevron, 467 U.S. at 843 n.9.


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                                   No. 17-10238
      We conclude that DOL’s interpretation of an “investment advice
fiduciary” relies too narrowly on a purely semantic construction of one isolated
provision and wrongly presupposes that the provision is inherently ambiguous.
Properly construed, the statutory text is not ambiguous. Ambiguity, to the
contrary, “is a creature not of definitional possibilities but of statutory context.”
Brown v. Gardner, 513 U.S. 115, 118 (1994). Moreover, all relevant sources
indicate that Congress codified the touchstone of common law fiduciary
status—the parties’ underlying relationship of trust and confidence—and
nothing in the statute “requires” departing from the touchstone.                 See
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 311 (1992) (where a term in
ERISA has a “settled meaning under … the common law, a court must infer,
unless the statute otherwise dictates, that Congress mean[t] to incorporate the
established meaning”) (internal quotation omitted) (emphasis added).
             1.    The Common Law Presumptively Applies
      Congress’s use of the word “fiduciary” triggers the “settled principle of
interpretation that, absent other indication, ‘Congress intends to incorporate
the well-settled meaning of the common-law terms it uses.’” United States v.
Castleman, 134 S. Ct. 1405, 1410 (2014) (quoting Sekhar v. United States,
133 S. Ct. 2720, 2724 (2013)). Indeed, it is “the general rule that ‘a common-
law term of art should be given its established common-law meaning,’ except
‘where that meaning does not fit.’” Id. (quoting Johnson v. United States,
559 U.S. 133, 139 (2010)). This general presumption is particularly salient in
analyses of ERISA, which has its roots in the common law. See, e.g., Tibble v.
Edison Int’l, 135 S. Ct. 1823, 1828 (2015) (“In determining the contours of an
ERISA fiduciary’s duty, courts often must look to the law of trusts.”); Kennedy
v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 294–96 (2009); Aetna
Health Inc. v. Davila, 542 U.S. 200, 218–19 (2004); Pegram v. Herdrich,


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                                 No. 17-10238
530 U.S. 211, 223–24 (2000); Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
101, 110 (1989).
      The common law term “fiduciary” falls within the scope of this
presumption. In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court cited
Congress’s use of “fiduciary” as one example of “ERISA abound[ing] with the
language and terminology of trust law.” 489 U.S. at 110 (citing 29 U.S.C.
§ 1002(21)(A)). More importantly for present purposes, the Court rejected
dictionary definitions in favor of the common law when analyzing the statutory
definition of “fiduciary” in Varity Corp. v. Howe, 516 U.S. 489 (1996). There,
the Court was tasked with determining the meaning of the word
“administration,” which appears in another of the tripartite examples of a
“fiduciary,” 29 U.S.C. § 1002(21)(A)(iii). See Varity Corp., 516 U.S. at 502. The
Court noted that “[t]he dissent look[ed] to the dictionary for interpretive
assistance,” but the Court expressly declined to follow that route: “Though
dictionaries sometimes help in such matters, we believe it more important here
to look to the common law, which, over the years, has given to terms such as
‘fiduciary’ and trust ‘administration’ a legal meaning to which, we normally
presume, Congress meant to refer.”       Id.   The Court then considered the
“ordinary trust law understanding of fiduciary ‘administration’” to determine
that an entity “was acting as a fiduciary.” Id. at 502–03.
      The common law understanding of fiduciary status is not only the proper
starting point in this analysis, but is as specific as it is venerable. Fiduciary
status turns on the existence of a relationship of trust and confidence between
the fiduciary and client. “The concept of fiduciary responsibility dates back to
fiducia of Roman law,” and “[t]he entire concept was founded on concepts of
sanctity, trust, confidence, honesty, fidelity, and integrity.” George M. Turner,
Revocable Trusts § 3:2 (Sept. 2016 Update). Indeed, “[t]he development of the
term in legal history under the Common Law suggested a situation wherein a
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                                   No. 17-10238
person assumed the character of a trustee, or an analogous relationship, where
there was an underlying confidence involved that required scrupulous fidelity
and honesty.” Id. Another treatise addresses relationships “which require
trust and confidence,” and explains that “[e]quity has always taken an active
interest in fostering and protecting these intimate relationships which it calls
‘fiduciary.’”    GEORGE G. BOGERT, ET AL., TRUSTS & TRUSTEES § 481 (2017
Update).        Yet another treatise describes fiduciaries as “individuals or
corporations who appear to accept, expressly or impliedly, an obligation to act
in a position of trust or confidence for the benefit of another or who have
accepted a status or relationship understood to entail such an obligation,
generating the beneficiary’s justifiable expectations of loyalty.”       3 DAN B.
DOBBS, ET AL., THE LAW OF TORTS § 697 (2d ed. June 2017 Update). Notably,
DOL does not dispute that a relationship of trust and confidence is the sine
qua non of fiduciary status.
      Congress did not expressly state the common law understanding of
“fiduciary,” but it provided a good indicator of its intention. In § 1002, ERISA’s
definitional section, 41 of 42 provisions begin by stating, “[t]he term [“X”]
means . . . .”    29 U.S.C. § 1002(1)–(20), (22)–(42).   For example, § 1002(6)
begins, “[t]he term ‘employee’ means any individual employed by an
employer.” 7 Similarly, § 1002(8) begins, “[t]he term ‘beneficiary’ means a
person designated by a participant, or by the terms of an employee benefit plan,
who is or may become entitled to a benefit thereunder.” In each case, Congress
placed a word or phrase in quotation marks before defining the word or phrase.
      The unique provision in which Congress did not take that route
delineates the term “fiduciary.” Instead, Congress stated that “a person is a



      7 In Nationwide Mut. Ins. Co. v. Darden, 503 U.S. at 322-23, the Supreme Court
invoked the common law to interpret ERISA’s definition of “employee.”
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                                 No. 17-10238
fiduciary with respect to a plan to the extent” he performs any of the
enumerated functions.     Id. § 1002(21)(A).      That Congress did not place
“fiduciary” in quotation marks indicates Congress’s decision that the common
law meaning was self-explanatory, and it accordingly addressed fiduciary
status for ERISA purposes in terms of enumerated functions.             See John
Hancock Mut. Life Ins. v. Harris Tr. & Sav. Bank, 510 U.S. 86, 96–97 (1993)
(the words “to the extent” in ERISA are “words of limitation”).
      In any event, “absent other indication, ‘Congress intend[ed] to
incorporate the well-settled meaning’” of “fiduciary”—the very essence of which
is a relationship of trust and confidence. See Castleman, 134 S. Ct. at 1410
(quoting Sekhar, 133 S. Ct. at 2724).
            2.    Displacement of the Presumption?
      DOL concedes the relevance of the common-law presumption and the
common-law trust-and-confidence standard but then places all its eggs in one
basket: displacement of the presumption. Invoking its favorite phrases from
Varity Corp., DOL argues that the common law is only “a starting point” and
the presumption “is displaced if inconsistent with ‘the language of the statute,
its structure, or its purposes.’”   (quoting Varity Corp., 516 U.S. at 497)
(emphasis removed). Displacement should occur here, DOL continues, because
“DOL reasonably interpreted ERISA’s language, structure, and purpose to go
beyond the trust-and-confidence standard.”
      As a preliminary matter, DOL neglects to mention two aspects of Varity
Corp. that cut against its position.         First, the phrase quoted above is
significantly less absolute than DOL lets on: “In some instances, trust law will
offer only a starting point, after which courts must go on to ask whether, or to
what extent, the language of the statute, its structure, or its purposes require
departing from common-law trust requirements.” Varity Corp., 516 U.S. at
497 (emphases added). Thus, it is not the case, as DOL suggests, that any
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                                  No. 17-10238
perceived inconsistency automatically requires jettisoning the common-law
understanding of “fiduciary.” Second, although the Court suggested that in
some instances the common law will be “only a starting point,” the Court went
on specifically to reject reliance on dictionary definitions when interpreting the
statutory definition of “fiduciary” and reverted to the common law. See id. at
502–03. Thus, Varity Corp. reinforces rather than rejects the common law
when interpreting ERISA.
      Even more important, DOL acknowledges appellants’ argument “that
there is nothing inherently inconsistent between the trust-and-confidence
standard and ERISA’s definition” of “fiduciary.” The DOL’s only response is
that it “is not required to adopt semantically possible interpretations merely
because they would comport with common-law standards.” But this proves
appellants’ point: adopting “semantically possible” interpretations that do not
“comport with common law standards” is contrary to Varity Corp. because the
statute does not “require departing from [the] common-law” trust-and-
confidence standard. Id. at 497. DOL’s concession should end any debate
about the viability and vitality of the common law presumption.
            3.      Statutory Text—“investment advice fiduciary”
      Even if the common law presumption did not apply, the Fiduciary Rule
contradicts the text of the “investment advice fiduciary” provision and
contemporary understandings of its language.         To restate, a person is a
fiduciary with respect to a plan to the extent “he renders investment advice for
a fee or other compensation, direct or indirect, with respect to any moneys or
other property of such plan, or has any authority or responsibility to do so[.]”
29 U.S.C. § 1002(21)(A)(ii); 26 U.S.C. § 4975(e)(3)(B). Focusing on the words
“investment” and “advice,” DOL cites dictionary definitions to explain the
breadth of the terms, the reasonableness of the Fiduciary Rule’s construction


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                                 No. 17-10238
of those terms, and the permissibility of its departure from the common law
trust and confidence standard.
      Going straight to dictionary definitions not only conflicts with Varity
Corp., but it also fails to take into account whether the words that Congress
used were terms of art within the financial services industry. See, e.g., Corning
Glass Works v. Brennan, 417 U.S. 188, 201–02 (1974) (rejecting an ordinary
understanding of “working conditions” because “the term has a different and
much more specific meaning in the language of industrial relations”).
Moreover, the technique of defining individual words in a vacuum fails to view
the entire provision in context. “[S]tatutory language cannot be construed in
a vacuum. It is a fundamental canon of statutory construction that the words
of a statute must be read in their context and with a view to their place in the
overall statutory scheme.” Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809
(1989).
      Properly considered, the statutory text equating the “rendering” of
“investment advice for a fee” with fiduciary status comports with common law
and the structure of the financial services industry. When enacting ERISA,
Congress was well aware of the distinction, explained further below, between
investment advisers, who were considered fiduciaries, and stockbrokers and
insurance agents, who generally assumed no such status in selling products to
their clients. The Fiduciary Rule improperly dispenses with this distinction.
Had Congress intended to include as a fiduciary any financial services provider
to investment plans, it could have written ERISA to cover any person who
renders “any investment advice for a fee....”     The word “any” would have
embodied DOL’s expansive interpretation, and it is a word used five times in
ERISA’s tripartite fiduciary definition, e.g. “any authority or responsibility.”
See generally 29 U.S.C. § 1002(21)(A).       That Congress did not say “any
investment advice” signals the intentional omission of this adjective.       See
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                                  No. 17-10238
Russello v. United States, 464 U.S. 16, 23 (1983) (“[W]here Congress includes
particular language in one section of a statute but omits it in another. . ., it is
presumed that Congress acts intentionally and purposely. . . .”). Further,
DOL’s interpretation conjoins “advice” with a “fee or other compensation,
direct or indirect,” but it ignores the preposition “for,” which indicates that the
purpose of the fee is not “sales” but “advice.” Therefore, taken at face value,
the provision rejects “any advice” in favor of the activity of “render[ing]
investment advice for a fee.”        Stockbrokers and insurance agents are
compensated only for completed sales (“directly or indirectly”), not on the basis
of their pitch to the client. Investment advisers, on the other hand, are paid
fees because they “render advice.”      The statutory language preserves this
important distinction.
       Put otherwise, DOL’s defense of the Fiduciary Rule contemplates a
hypothetical law that states, “a person is a fiduciary with respect to a plan to
the extent…he receives a fee, in whole or in part, in connection with any
investment advice….” This language could have embraced individual sales
transactions as well as the stand-alone furnishing of investment advice. But
this iteration does not square with the last clause of the actual law, which
includes a person who “has any authority or responsibility to [render
investment advice].” Only in DOL’s semantically created world do salespeople
and insurance brokers have “authority” or “responsibility” to “render
investment advice.” The DOL interpretation, in sum, attempts to rewrite the
law that is the sole source of its authority. This it cannot do.
       Further, in law and the financial services industry, rendering
“investment advice for a fee” customarily distinguished salespeople from
investment advisers during the period leading up to ERISA’s 1974 passage.
Congress is presumed to have acted against a background of shared
understanding of the terms it uses in statutes. Morissette v. United States,
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                                 No. 17-10238
342 U.S. 246, 263 (1952); see also Miles v. Apex Marine Corp., 498 U.S. 19, 32
(1990) (“We assume that Congress is aware of existing law when it passes
legislation.”). And the phrase “investment advice for a fee” and similar phrases
generally referenced a fiduciary relationship of trust and confidence between
the adviser and client.
      To begin with, DOL itself reflected this understanding in its 1975
definition of an “investment advice fiduciary.” There, DOL there explained
that a “fee or other compensation” for the rendering of investment advice under
ERISA “should be deemed to include all fees or other compensation incident to
the transaction in which the investment advice to the plan has been rendered
or will be rendered.” Definition of the Term “Fiduciary,” 40 Fed. Reg. 50842,
50842-43 (Oct. 31, 1975).    DOL went on to say that this “may include”
brokerage commissions, but only if the broker-dealer who earned the
commission otherwise satisfied the regulation’s requirements that the broker-
dealer provide individualized advice on a regular basis pursuant to a mutual
agreement with his client. See id. Later, DOL reiterated that “the receipt of
commissions by a broker-dealer which performs services in addition to that of
effecting or executing securities transactions for a plan is not necessarily
dispositive of whether the broker-dealer received a portion of such
compensation for the rendering of ‘investment advice.’” DOL Advisory Opinion
83-60A (Nov. 21, 1983), in ERISA for Money Managers and Advisers § 2:51
(Sept. 2016 Update). Instead, “if, under the particular facts and circumstances,
the services provided by the broker-dealer include the provision of ‘investment
advice’” as defined by the regulation—i.e. on a regular basis pursuant to a
mutual agreement to provide individualized advice—only then “may [it] be
reasonably expected that, even in the absence of a distinct and identifiable fee
for such advice, a portion of the commissions paid to the broker-dealer would
represent compensation for the provision of such investment advice.” Id.
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                                  No. 17-10238
      DOL’s 1975 regulation flowed directly from contemporary understanding
of “investment advice for a fee,” which contemplated an intimate relationship
between adviser and client beyond ordinary buyer-seller interactions. The
Fiduciary Rule is at odds with that understanding.
      Substantial case law has followed and adopted DOL’s original dichotomy
between mere sales conduct, which does not usually create a fiduciary
relationship under ERISA, and investment advice for a fee, which does. In the
Fifth Circuit, this court held that “[s]imply urging the purchase of its products
does not make an insurance company an ERISA fiduciary with respect to those
products.” Am. Fed’n of Unions v. Equitable Life Assurance Soc’y, 841 F.2d
658, 664 (5th Cir. 1988). Applying the DOL’s 1975 regulation of an “investment
advice fiduciary,” the Seventh Circuit refused to hold a brokerage firm liable
for the failure of investments it sold to an ERISA plan, but the court
emphasized that there was
      nothing in the record to indicate that Jones or its employees had
      agreed to render individualized investment advice to the Plan. . . .
      The only ‘agreement’ between the parties was that the trustees
      would listen to Jones’ sales pitch and if the trustees liked the pitch,
      the Plan would purchase from among the suggested investments,
      the very cornerstone of a typical broker-client relationship.

Farm King Supply, Inc. v. Edward D. Jones & Co., 884 F.2d 288, 293 (7th Cir.
1989) (emphasis added). The Eleventh Circuit, relying upon “numerous” cases,
dismissed a claim that an insurance company’s selling of life policies to an
ERISA plan, without more, sufficed to give rise to fiduciary duties to the plan.
Cotton v. Mass. Mut. Life Ins. Co., 402 F.3d 1267, 1278-79 (11th Cir. 2005).
      The SEC has also repeatedly held that “[t]he very function of furnishing
[investment advice for compensation]—learning the personal and intimate
details of the financial affairs of clients and making recommendations as to
purchases and sales of securities—cultivates a confidential and intimate

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                                      No. 17-10238
relationship”—rendering a broker-dealer who does so “a fiduciary.” Hughes,
Exchange Act Release No. 4048, 1948 WL 29537, at *4, *7 (Feb. 18, 1948), aff’d
sub nom., Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949); see also Mason, Moran
& Co., Exchange Act Release No. 4832, 1953 WL 44092, at *4 (Apr. 23, 1953).
The SEC cautioned that fiduciary status does not follow “merely from the fact
that [the broker-dealer] renders investment advice.” Hughes, 1948 WL 29537,
at *7. Indeed, broker-dealers “who render investment advice merely as an
incident to their broker-dealer activities” are not fiduciaries “unless they have
by a course of conduct placed themselves in a position of trust and confidence
as to their customers.” Id. The SEC’s industry-based distinction thus long
predated the passage of ERISA. 8
       Significant federal and state legislation also used the term “investment
adviser” to exclude broker-dealers when their investment advice was “solely
incidental” to traditional broker-dealer activities and for which they received
no “special compensation.” The Investment Advisers Act of 1940, for example,
defines “investment adviser” as “any person who, for compensation, engages in
the business of advising others . . . as to the value of securities or as to the
advisability of investing in, purchasing, or selling securities[.]”              15 U.S.C.
§ 80b-2(a)(11). But the Act excludes “any broker or dealer whose performance
of such services is solely incidental to the conduct of his business as a broker
or dealer and who receives no special compensation therefor.” Id. 9 Later


       8Worth noting is that if the Fiduciary Rule is upheld, it places broker-dealers who
work with clients about both individual retirement plans and ordinary brokerage accounts in
an untenable position; they will be covered by two separate, complex regulatory regimes
depending on the client’s account or accounts they are discussing.

       9  Contrary to the dissent’s implication that the Investment Advisers Act ought to be
semantically identical to ERISA before any comparison may be drawn, we reference that
statute as background authority, which demonstrates Congressional awareness, when
ERISA was enacted, of the difference between a fiduciary’s offering regular investment advice
for a fee and ordinary brokerage transactions. There is nothing illogical in reading ERISA’s
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                                       No. 17-10238
interpreting the Act, the Supreme Court highlighted legislative history in
which “leading investment advisers emphasized their relationship of ‘trust and
confidence’ with their clients,” and the Court stated that the Act reflected
Congress’s recognition of “the delicate fiduciary nature of an investment
advisory relationship.” SEC v. Capital Gains Research Bureau, Inc., 375 U.S.
180, 190–91 (1963) (quotation marks and citation omitted).                         Numerous
contemporary state statutes also excluded broker-dealers from investment-
adviser fiduciary status either completely or to the extent that the advice was
incidental to their traditional activities and they did not receive special
compensation for the advice. 10
       The contemporary case law similarly demonstrates that when
investment advice was procured “on a fee basis,” it entailed a substantial,
ongoing relationship between adviser and client. See, e.g., SEC v. Ins. Sec.,
Inc., 254 F.2d 642, 645 (9th Cir. 1958) (company receives a “management and
investment supervisory fee for investment advice” on annual bases); Kukman
v. Baum, 346 F. Supp. 55, 56 (N.D. Ill. 1972) (“Supervisor[] furnishes
investment advice” and “receives a monthly fee calculated on the net value of
the fund’s assets.”); Norman v. McKee, 290 F. Supp. 29, 34 (N.D. Cal. 1968)
(“For its services, including administration, management and investment
advice, ISI charges a so-called ‘Management Fee’ of 1 1/2% Per year of the face
amount of each outstanding investment certificate.”); Acampora v. Birkland,



1974 definition of “fiduciary” to embody a well-accepted distinction. See Sekhar v. U.S.,
133 S. Ct. 2720, at 2724 (2013)(observing, “if a word is obviously transplanted from another
legal source, whether the common law or other legislation, it brings the old soil with
it.”(internal quotation marks and citation omitted)).

       10 See, e.g., Cal. Corp. Code § 25009 (1968); Del. Code tit. 6, § 7302(1)(f)3 (1973); Ky.
Rev. Stat. 292.310(7)(c) (1972); Mont. Code § 30-10-103(5)(c) (1961); N.Y. Gen. Bus. Law
§ 359-eee(1)(a)3 (1960); N.D. Cent. Code § 10-04-02(10) (1951); 70 Pa. Stat. and Cons. Stat.
§ 1-102(j)(iii) (1972); Utah Code § 61-1-13(6)(c) (1963); Wash. Rev. Code § 21.20.005(6)(c)
(1967); W. Va. Code § 32-4-401(f)(3) (1974).
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                                  No. 17-10238
220 F. Supp. 527, 533 (D. Colo. 1963) (entity “undertook to employ independent
investment counsel” “for the purpose of the rendition of investment advice,”
and in return the entity received a fee equal to 0.5% of the advice recipient’s
yearly net asset value); Glicken v. Bradford, 204 F. Supp. 300, 302 (S.D.N.Y.
1962) (company “is engaged in furnishing investment advice on a fee basis to
its clients”); SEC v. Fiscal Fund, 48 F. Supp. 712, 713 & n.7 (D. Del. 1943) (“for
a stated fee” of “approximately $3,000 per annum,” company agreed to “furnish
all   services,   including   management,    investment     advice   and   clerical
assistance”).
        In short, whether one looks at DOL’s original regulation, the SEC,
federal and state legislation governing investment adviser fiduciary status vis-
à-vis broker-dealers, or case law tying investment advice for a fee to ongoing
relationships between adviser and client, the answer is the same: “investment
advice for a fee” was widely interpreted hand in hand with the relationship of
trust and confidence that characterizes fiduciary status.
        DOL’s invocation of two dictionary definitions of “investment” and
“advice” pales in comparison to this historical evidence. That DOL contradicts
its own longstanding, contemporary interpretation of an “investment advice
fiduciary” and cannot point to a single contemporary source that interprets the
term to include stockbrokers and insurance agents indicates that the Rule is
far afield from its enabling legislation. DOL admits as much in conceding that
the new Rule would “sweep in some relationships” that “the Department does
not believe Congress intended to cover as fiduciary.”
        Congress does not “hide elephants in mouseholes.” Whitman v. Am.
Trucking Ass’ns, Inc., 531 U.S. 457, 468 (2001). Had Congress intended to
abrogate both the cornerstone of fiduciary status—the relationship of trust and
confidence—and the widely shared understanding that financial salespeople
are not fiduciaries absent that special relationship, one would reasonably
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                                 No. 17-10238
expect Congress to say so. This is particularly true where such abrogation
portends consequences that “are undeniably significant.”       Accordingly, the
Fiduciary Rule’s interpretation of “investment advice fiduciary” fatally
conflicts with the statutory text and contemporary understandings.
            4.    Consistency with other prongs of ERISA’s “fiduciary”
                  definition

      In addition to the preceding flaws, the Fiduciary Rule renders the second
prong of ERISA’s fiduciary status definition in tension with its companion
subsections. The Rule thus poses a serious harmonious-reading problem. See
ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION
OF LEGAL TEXTS 180 (2012) (“The provisions of a text should be interpreted in

a way that renders them compatible, not contradictory.”). The investment-
advice prong of the statutory application of “fiduciary” is bookended by one
subsection that defines individuals as fiduciaries with respect to a plan to the
extent they exercise “any discretionary authority or . . . control” over the
management of a retirement plan or “any authority or control” over its assets.
29 U.S.C. § 1001(21)(A)(i); 26 U.S.C. § 4975(e)(3)(A).     The following prong
identifies as fiduciaries those individuals to the extent they possess “any
discretionary authority or . . . responsibility” in a plan’s administration.
29 U.S.C. § 1001(21)(A)(iii); 26 U.S.C. § 4975(e)(3)(C).      In Mertens, the
Supreme Court was emphatic that these prongs defined “fiduciary” in
“functional terms of control and authority.” See Mertens v. Hewitt Assocs.,
508 U.S. 248, 262 (1993).    The phrase “control and authority” necessarily
implies a special relationship beyond that of an ordinary buyer and seller.
      Sandwiched between the two “control and authority” prongs, the
interpretation of an “investment advice fiduciary” should gauge that
subdivision by the company it keeps and should uniformly apply the trust and
confidence standard in all three provisions. Roberts v. Sea-Land Servs., Inc.,
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                                      No. 17-10238
566 U.S. 93, 101 (2012) (“the words of a statute must be read in their context”
(quotation omitted)). The inference of textual consistency is reinforced by the
similar phrasing in the last clause of the investment advice fiduciary prong,
which refers to a person “with any authority or responsibility” to render
investment advice for a fee. Salespeople in ordinary buyer-seller transactions
have no such authority or responsibility. 11
       Countertextually, the Fiduciary Rule’s interpretation of an “investment
advice fiduciary” lacks any requirement of a special relationship. DOL thus
asks us to differentiate within the definition of “fiduciary”—rendering the
definition a moving target depending on which of the three prongs is at issue.
Standard textual interpretation disavows that disharmony.
       There is also no merit in DOL’s reliance on Mertens for the broader
proposition that ERISA departed from the common law definition of
“fiduciary.” DOL emphasizes the Court’s statement that, by defining fiduciary
in “functional” terms, Congress “expand[ed] the universe of persons subject to
fiduciary duties.” Mertens, 508 U.S. at 262.
       DOL’s quotation is correct but beside the point. The question in Mertens
was whether individuals who were not subject to fiduciary duties at common
law could be sued under ERISA. See id. at 261–62. This question arose
because under the common law, not only the named trustee, but also
individuals who “knowingly participated” in a named trustee’s breach of his
fiduciary duties, could be held liable. Id. at 256. The Court held that this was




       11 The dissent appears to contend that the “investment advice fiduciary” prong of
ERISA’s definition would be “stripped of meaning” by the other two prongs of that definition
were it required to incorporate traditional fiduciary standards. On the contrary, each
provision covers a distinct aspect of ERISA plan governance: control over the management
or assets of the plan (i); rendering investment advice for a fee to the plan (ii); and
discretionary authority in plan administration (iii).       Although potentially somewhat
overlapping, these activities are conceptually and practically distinguishable.
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                                      No. 17-10238
no longer the case under ERISA. Although Congress “expand[ed] the universe
of persons subject to fiduciary duties” by defining “fiduciary” “not in terms of
formal trusteeship, but in functional terms of control and authority over the
plan,” Congress actually limited the number of persons that could be sued. Id.
at 262. ERISA differed from common law by excluding “persons who [despite
participation in the trustee’s breach] had no real power to control what the
plan did.” Id.
       Under Mertens, ERISA eliminated the “formal trusteeship” requirement
and applied fiduciary status to all individuals who have “control and authority
over the plan.” Id. The reason for this is clear: “Professional service providers
such as actuaries become liable for damages when they cross the line from
adviser to fiduciary.”      Id. (emphasis added).         Thus, the Court understood
ERISA to apply to those who act as fiduciaries, regardless whether they are
named fiduciaries. That understanding is consistent, not inconsistent, with the
common law trust and confidence standard.
       Moreover, although ERISA “abrogate[d] the common law in certain
respects” concerning “formal trusteeship,” “we presume that Congress retained
all other elements of common-law [fiduciary status] that are consistent with
the statutory text because there are no textual indicia to the contrary.”
Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 1999 n.2
(2016). 12 There is no inconsistency between the statutory structure and the




       12 For the same reason, DOL’s reliance on Varity Corp. and Pegram v. Herdrich,
530 U.S. 211 (2000) as “cases [that] endors[e] other departures from the common law
concerning fiduciaries,” does not advance the ball. Those cases stand for the unremarkable
proposition that, although an individual may hold both fiduciary and non-fiduciary positions,
the individual must be acting as a fiduciary to be subject to ERISA fiduciary duties. See
Pegram, 530 U.S. at 224–26, Varity Corp., 516 U.S. at 498. Again, the trust-and-confidence
standard is consistent, not inconsistent, with those holdings.
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                                 No. 17-10238
common law trust and confidence standard that “require[s] departing from
common-law trust requirements.” Varity Corp., 516 U.S. at 497.
             5.   Purposes
      DOL ultimately falls back on statutory purposes. DOL points to the
alleged negative repercussions of appellants’ position, namely that “many
investment advisers would be able to ‘play a central role in shaping’ retirement
investments without the fiduciary safeguards ‘for persons having such
influence and responsibility.’” (quoting 81 Fed. Reg. 20955). DOL also says
that appellants “cannot show that DOL acted unreasonably in determining
that their proposed trust-and-confidence requirement would ‘undermine[]
rather than promote[]’ ERISA’s goals.” (quoting 81 Fed. Reg. 20955). Finally,
citing United States v. Guidry, 456 F.3d 493, 510–11 (5th Cir. 2006), DOL
concludes that “[s]uch inconsistency with statutory purposes is alone sufficient
to displace the common law, as Varity reflects and this Court has held in other
contexts.”
      None of these arguments holds water. DOL’s invocation of ERISA’s
purposes is unpersuasive in light of Mertens. There, the petitioners asked for
a particular interpretation of ERISA “in order to achieve the ‘purpose of ERISA
to protect plan participants and beneficiaries.’”     508 U.S. at 261.       The
petitioners complained that a different interpretation would “leave[]
beneficiaries like petitioners with less protection than existed before ERISA,
contradicting ERISA’s basic goal of ‘promot[ing] the interests of employees and
their beneficiaries in employee benefit plans.’” Id. (quoting Shaw, 463 U.S. at
90). Mertens rejected these complaints because “vague notions of a statute’s
‘basic purpose’ are nonetheless inadequate to overcome the words of its text
regarding the specific issue under consideration.” Id. Indeed, the Court said
that “[t]his is especially true with legislation such as ERISA, an enormously
complex and detailed statute that resolved innumerable disputes between
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                                 No. 17-10238
powerful competing interests—not all in favor of potential plaintiffs.” Id. at
262; see also Darden, 503 U.S. at 324-25 (rejecting broader definition of
employee based solely on the “goals” of ERISA). DOL’s complaints here about
“undermining ERISA’s goals” are no less vague than the notions rejected in
Mertens and Darden.
        Moreover, DOL’s principal policy concern about the lack of fiduciary
safeguards in Title II was present when the statute was enacted, but Congress
chose not to require advisers to individual retirement plans to bear the duties
of loyalty and prudence required of Title I ERISA plan fiduciaries. That times
have changed, the financial market has become more complex, and IRA
accounts have assumed enormous importance are arguments for Congress to
make adjustments in the law, or for other appropriate federal or state
regulators to act within their authority. A perceived “need” does not empower
DOL to craft de facto statutory amendments or to act beyond its expressly
defined authority.
        Finally, DOL’s reliance on Guidry is misleading and misplaced. Guidry
was a criminal kidnapping-enhancement case in which this court was required
to define the term “kidnap.” 456 F.3d at 509–11. This court noted that “[w]e
do not use the common law definition of any term where it would be
inconsistent with the statute’s purpose, notably where the term’s definition has
evolved.” Id. at 509. This court applied the modern definition because the
term “kidnap” had evolved so far from the antiquated common law that the
common-law definition “would come close to nullifying the term’s effect in the
statute.” Id. at 510-11 (quoting Taylor v. United States, 495 U.S. 575, 594
(1990)). Unlike the term “kidnap,” the term “fiduciary” has not “evolved” over
time.
        In sum, using the “regular interpretive method leaves no serious
question, not even about purely textual ambiguity” in ERISA. Gen. Dynamics
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                                        No. 17-10238
Land Sys., Inc. v. Cline, 540 U.S. 581, 600 (2004). DOL cannot displace the
presumption of common-law meaning because there is no inconsistency
between the common-law trust-and-confidence standard and the statutory
definition of “fiduciary.” The Fiduciary Rule conflicts with the plain text of the
“investment advice fiduciary” provision as interpreted in light of contemporary
understandings, and it is inconsistent with the entirety of ERISA’s “fiduciary”
definition. DOL therefore lacked statutory authority to promulgate the Rule
with its overreaching definition of “investment advice fiduciary.”               13


            B. The Fiduciary Rule fails the "reasonableness" test of
              Chevron step 2 and the APA.

       Under Step 2 of Chevron, “if the statute is silent or ambiguous with
respect to the specific issue, the question for the court is whether the agency’s
answer is based on a permissible construction of the statute.”                        Chevron,
467 U.S. at 843.         Notwithstanding the preceding discussion, we assume
arguendo that there is some ambiguity in the phrase “investment advice for a
fee.” In that case, the Chevron doctrine requires that DOL’s regulatory
interpretation be upheld if it is “reasonable.” Id. at 845. 14 In addition, the


       13 As noted at the beginning of this analysis, the Fiduciary Rule’s overbreadth flows
from DOL’s concession that any financial services or insurance salesman who lacks a
relationship of trust and confidence with his client can nonetheless be deemed a fiduciary.
This conclusion, however, does not mean that any regulation of such transactions, or of IRA
plans, is proscribed. (“To the extent . . . that some brokers and agents hold themselves out
as advisors to induce a fiduciary-like trust and confidence, the solution is for an appropriately
authorized agency to craft a rule addressing that circumstance, not to adopt an interpretation
that deems the speech of a salesperson to be that of a fiduciary, and that concededly is so
overbroad that . . . it must be accompanied by a raft of corrections.”).

       14This court is bound by the Supreme Court’s decisions to defer to an agency’s
“reasonable” construction of an ambiguous statute within its realm of enforcement
responsibility. Nevertheless, the Chevron doctrine has been questioned on substantial
grounds, including that it represents an abdication of the judiciary’s duty under Article III
“to say what the law is,” and thus turns over judicial power to politically unaccountable
employees of the Executive Department. See, e.g., Michigan v. E.P.A., 135 S. Ct. 2699, 2712
(2015) (Thomas, J., concurring) (“Chevron deference precludes judges from exercising
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                                       No. 17-10238
regulation must withstand APA review, ensuring it is not arbitrary, capricious,
contrary to law or in excess of statutory authority. 5 U.S.C. § 706(2)(A).
Although DOL is empowered to enact regulations enforcing the fiduciary
provisions of ERISA Title I, including the definition of “fiduciary” in Titles I
and II, the Rule fails to pass the tests of reasonableness or the APA.
       Bear in mind that DOL’s 1975 regulations only covered “investment
advice fiduciaries” who rendered advice regularly and as the primary basis for
clients’ investment decisions. The Fiduciary Rule extends regulation to any
financial transaction involving an ERISA or IRA plan in which “advice” plays
a part, and a fee, “direct or indirect,” is received. The Rule expressly includes
one-time IRA rollover or annuity transactions where it is ordinarily
inconceivable that financial salespeople or insurance agents will have an
intimate relationship of trust and confidence with prospective purchasers.
Through the BIC Exemption, the Rule undertakes to regulate these and
myriad other transactions as if there were little difference between them and
the activities of ERISA employer-sponsored plan fiduciaries. Finally, in failing
to grant certain annuities the long-established protection of PTE 84-24, the
Rule competitively disadvantages their market because DOL believes these
annuities are unsuitable for IRA investors.




[independent] judgment, forcing them to abandon what they believe is ‘the best reading of an
ambiguous statute’ in favor of an agency’s construction.”) (quoting Nat’l Cable & Telecomm.
Ass’n v. Brand X Internet Servs., 545 U.S. 967, 983 (2005)); Gutierrez-Brizuela v. Lynch,
834 F.3d 1142, 1152 (10th Cir. 2016) (Gorsuch, J., concurring) (“Chevron seems no less than
a judge-made doctrine for the abdication of the judicial duty.”); Esquivel-Quintana v. Lynch,
810 F.3d 1019, 1027-32 (6th Cir. 2016), rev’d on other grounds, 137 S. Ct. 1562 (2017) (Sutton,
J., concurring in part and dissenting in part) (arguing the rule of lenity should trump Chevron
deference when the Immigration and Nationality Act’s civil provisions have the possibility of
entailing criminal consequences); Philip Hamburger, Is Administrative Law Unlawful? 316
(2014). Although the status of Chevron may be uncertain, the parties vigorously disputed the
applicability of Chevron and we must respond to their arguments.
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                                  No. 17-10238
      Not only does the Rule disregard the essential common law trust and
confidence standard, but it does not holistically account for the language of the
“investment advice fiduciary” provision or for the additional prongs of ERISA’s
fiduciary definition. The Supreme Court has warned that “there may be a
question about whether [an agency’s] departure from the common law…with
respect to particular questions and in a particular statutory context[] renders
its interpretation unreasonable.”     NLRB v. Town & Country Elec., Inc.,
516 U.S. 85, 94 (1995). Given that the text here does not compel departing
from the common law (but actually embraces it), and given that the Fiduciary
Rule suffers from its own conflicts with the statutory text, the Rule is
unreasonable.
      Moreover, that it took DOL forty years to “discover” its novel
interpretation further highlights the Rule’s unreasonableness. See Util. Air
Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2444 (2014) (hereinafter, “UARG”)
(“When an agency claims to discover in a long-extant statute an unheralded
power to regulate a significant portion of the American economy, we typically
greet its announcement with a measure of skepticism.”) (citation and quotation
marks omitted). DOL’s turnaround from its previous regulation that upheld
the common law understanding of fiduciary relationships alone gives us reason
to withhold approval or at least deference for the Rule. See Gen. Elec. Co. v.
Gilbert, 429 U.S. 125, 142 (1976) (overturning an agency guideline that was
“not a contemporaneous interpretation of Title VII,” and “flatly contradicts the
position which the agency had enunciated at an earlier date, closer to the
enactment of the governing statute”); see also Watt v. Alaska, 451 U.S. 259,
272-73 (1981) (“[P]ersuasive weight” is due to an agency’s contemporaneous
construction of applicable law and subsequent consistent interpretation,
whereas a “current interpretation, being in conflict with its initial position, is
entitled to considerably less deference.”).
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                                 No. 17-10238
      The following problems highlight the unreasonableness of the Rule and
its incompatibility with APA standards.
      First, the Rule ignores that ERISA Titles I and II distinguish between
DOL’s authority over ERISA employer-sponsored plans and individual IRA
accounts. By statute, ERISA plan fiduciaries must adhere to the traditional
common law duties of loyalty and prudence in fulfilling their functions, and it
is up to DOL to craft regulations enforcing that provision. 29 U.S.C. §§ 1001(b),
1104. IRA plan “fiduciaries,” though defined statutorily in the same way as
ERISA plan fiduciaries, are not saddled with these duties, and DOL is given
no direct statutory authority to regulate them. As to IRA plans, DOL is limited
to defining technical and accounting terms, 11 U.S.C. § 1135, and it may grant
exemptions from the prohibited transactions provisions. 26 U.S.C. § 4975(c)(2),
29 U.S.C. § 1108(a). Hornbook canons of statutory construction require that
every word in a statute be interpreted to have meaning, and Congress’s use
and withholding of terms within a statute is taken to be intentional. It follows
that these ERISA provisions must have different ranges; they cannot mean
that DOL may comparably regulate fiduciaries to ERISA plans and IRAs.
Loughrin v. United States, 134 S. Ct. 2384, 2390 (2014).            Despite the
differences between ERISA Title I and II, DOL is treating IRA financial
services providers in tandem with ERISA employer-sponsored plan fiduciaries.
The Fiduciary Rule impermissibly conflates the basic division drawn by
ERISA.
      DOL’s response to the statutory distinction is that it has broad power to
exempt “prohibited transactions.”         See 29 U.S.C. § 1108(a); 26 U.S.C.
§ 4975(c)(2). It has abused that power. The test is whether an exemption is
administratively feasible; in the interests of the plan, its participants and
beneficiaries; and protective of participants’ and beneficiaries’ rights. Id. DOL
adopted the BICE provisions after redefining “investment advice fiduciary” for
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                                 No. 17-10238
two essential reasons. To begin with, DOL knew, and continues to concede, its
new definition encompassed actors and transactions that the Department
“does not believe Congress intended to cover as fiduciary.” DOL had to create
exemptions not exclusively for the statutory purposes, but to blunt the
overinclusiveness of the new definition. Were it not for DOL’s ahistorical and
strained interpretation of “fiduciary,” there would be no rationale for the BICE
exemptions. Thus, when DOL argues that any exemptions would be more
lenient on IRA financial services providers than deeming their ordinary
activities to fall within the ERISA Title II prohibited transactions provision,
DOL proves too much.
      Additionally, the “exemptions” actually subject most of these newly
regulated actors and transactions to a raft of affirmative obligations. Among
the new requirements, brokers and insurance salespeople assume obligations
of loyalty and prudence only statutorily required of ERISA plan fiduciaries.
Further, when brokers and insurance representatives use the BICE
exemptions (as they must in order to preserve their commissions), they are
required to expose themselves to potential liability beyond the tax penalties
provided for in ERISA Title II. See 26 U.S.C. § 4975(a). ERISA employer-
sponsored plan fiduciaries may be sued under Title I, 29 U.S.C. § 1132(a), but
federal law did not expose brokers and insurance salespeople to private claims
of IRA investors until the Fiduciary Rule was promulgated. On this basic level,
DOL unreasonably failed to follow its statutory guidance and the clear
distinction in the scope of its authority under ERISA Titles I and II.
      Second, insofar as the Fiduciary Rule defines “investment advice
fiduciary” to include anyone who makes a suggestion “to a specific advice
recipient . . . regarding the advisability of a particular investment . . .
decision,” it comprises nearly any broker or insurance salesperson who deals
with IRA clients. Under ERISA, however, fiduciaries are generally prohibited
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                                       No. 17-10238
from selling financial products to plans. 26 U.S.C. § 4975(c)(1), 29 U.S.C.
§ 1106(b). As the Chamber of Commerce puts it, the Rule “treats the fact that
a person has done something that a fiduciary generally may not [do], as
dispositive evidence that the person is a fiduciary.” Transforming sales pitches
into the recommendations of a trusted adviser mixes apples and oranges. 15 But
the Rule is not even consistently transformative:                   it acknowledges the
distinction between sales and fiduciary advice by what it frankly called a
“seller’s carve-out” for certain transactions involving ERISA Title I plans with
more than $50 million in assets. See 29 C.F.R. § 2510-3.21(c)(1) (2016). DOL
explained that the purpose of the carve-out was “to avoid imposing ERISA
fiduciary obligations on sales pitches that are part of arm’s length transactions
where neither side assumes that the counterparty to the plan is acting as an
impartial or trusted adviser.” 81 Fed. Reg. at 20980. Only DOL’s fiat supports
treating smaller-scale sales pitches, those not carved out, as if the counterparty
is acting as an impartial or trusted adviser. Illogic and internal inconsistency
are characteristic of arbitrary and unreasonable agency action.
       Another such marker is the overbreadth of the BIC Exemption when
compared with an exception that Congress enacted to the prohibited
transactions provisions. 26 U.S.C. § 4975(d)(17) exempts from “prohibition”
transactions involving certain “eligible investment advice arrangements” for
individually     directed      accounts.     26 U.S.C.      § 4975(e)(3)(B);      26 U.S.C.


       15 See, e.g., Burton v. R. J. Reynolds Tobacco Co., 397 F.3d 906, 911-913 (10th Cir.
2005) (noting “the weight of core authority holding that the relationship between a product
buyer and seller is not fiduciary in nature”); Farm King Supply, 884 F.2d at 294 (“Jones
offered the plan individualized solicitations much the same way a car dealer solicits
particularized interest in its inventory.”); Schlumberger Tech. v. Swanson, 959 S.W.2d 171,
177 (Tex. 1997) (“while a fiduciary or confidential relationship may arise from the
circumstances of a particular case, to impose such a relationship in a business transaction,
the relationship must exist prior to, and apart from, the agreement made the basis of the
suit;” and “mere subjective trust does not, as a matter of law, transform arm’s-length dealing
into a fiduciary relationship”).
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                                  No. 17-10238
§ 4975(f)(8)(A), (B). Moreover, in describing the transactions not prohibited by
Section 4975(d)(17), Congress distinguished two activities: “the provision of
investment advice” and “the . . . sale of a security . . . .”           26 U.S.C.
§ 4975(d)(17)(A)(i), (ii). Congress further distinguished the “direct or indirect
receipt of fees” “in connection with the . . . advice” from fees “in connection with
the . . . sale of a security . . . .” 20 U.S.C. § 4975(d)(17)(A)(iii). That Congress
distinguished sales from the provision of investment advice is consistent with
this opinion’s interpretation of the statutory term, “render[ing] investment
advice for a fee,” 29 U.S.C. § 1002(21)(A)(ii), and inconsistent with DOL’s
conflating sales pitches and investment advice.
      Even more remarkable, DOL had to exclude Congress’s nuanced
§ 4975(d)(17) exemption from the BICE exemption’s onerous provisions.
81 Fed. Reg. 20982 n.33. But for this exclusion, the BIC Exemption would have
brazenly overruled Congress’s careful striking of a balance in the regulation of
“prohibited transactions” concerning certain self-directed IRA plans. DOL
candidly summarizes the intersection of its far broader Rule with Congress’s
exclusion contained in the Pension Protection Act of 2006 (PPA):
      [T]he PPA created a new statutory exemption that allows
      fiduciaries giving investment advice to individuals…to receive
      compensation from investment vehicles that they recommend in
      certain circumstances.        29 U.S.C. 1108(b)(14); 29 U.S.C.
      4975(d)(17). Recognizing the risks presented when advisers
      receive fees from the investments they recommend to individuals,
      Congress placed important constraints on such advice
      arrangements that are calculated to limit the potential for abuse
      and self-dealing….Thus, the PPA statutory exemption remains
      available to parties that would become investment advice
      fiduciaries [under the Fiduciary Rule] because of the broader
      definition in this final rule….

Id. (emphasis added).



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                                  No. 17-10238
      Unlike the BIC Exemption regulations, Congress’s exemption did not
require detailed contractual provisions or subject “fiduciaries” involved in
Section 4975(d)(17) transactions to the possibility of class actions suits without
damage limitations. When Congress has acted with a scalpel, it is not for the
agency to wield a cudgel. See Fin. Planning Ass’n. v. SEC, 482 F.3d 481 (D.C.
Cir. 2007) (overturning SEC’s broad regulatory exemption contrary to
Congress’s narrower exemption).
      Third, the Rule’s status is not salvaged by the BICE, which as noted was
designed to narrow the Rule’s overbreadth. The Supreme Court addressed
such a tactic when it held that agencies “are not free to adopt unreasonable
interpretations of statutory provisions and then edit other statutory provisions
to mitigate the unreasonableness.” See UARG, 134 S. Ct. at 2446 (internal
quotations and alterations omitted). This is the vice in BICE, which exploits
DOL’s narrow exemptive power in order to “cure” the Rule’s overbroad
interpretation of the “investment advice fiduciary” provision. DOL admitted
that without the BIC Exemptions, the Rule’s overbreadth could have “serious
adverse unintended consequences.” 81 Fed. Reg. at 21062. That a cure was
needed “should have alerted [the agency] that it had taken a wrong
interpretive turn.” UARG, 134 S. Ct. at 2446. The BIC Exemption is integral
to retaining the Rule. Because it is independently indefensible, this alone
dooms the entire Rule.
      Fourth, BICE extends far beyond creating “conditional” “exemptions” to
ERISA’s prohibited transactions provisions.           Rather than ameliorate
overbreadth, it deliberately extends ERISA Title I statutory duties of prudence
and loyalty to brokers and insurance representatives who sell to IRA plans,
although Title II has no such requirements. The BIC Exemption creates these
duties and burdensome warranty and disclosure requirements by writing
provisions for the regulated parties’ contracts with IRA owners.              The
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                                 No. 17-10238
contractual mandates fulfilled a “critical” and “central goal” of BICE, ensuring
IRA owners’ ability to enforce them with lawsuits, 81 Fed. Reg. 21020, 21021,
21033. Incentives to private lawsuits include the BICE’s additional provisions
that reject damage limitations and class action waivers. In stark contrast to
these entangling regulations, ERISA Title II only punishes violations of the
“prohibited transactions” provision by means of IRS audits and excise taxes.
And unlike § 1132 of ERISA Title I, Title II contains no private lawsuit
provision. Together, the Fiduciary Rule and the BIC Exemption circumvent
Congress’s withholding from DOL of regulatory authority over IRA plans. The
grafting of novel and extensive duties and liabilities on parties otherwise
subject only to the prohibited transactions penalties is unreasonable and
arbitrary and capricious.
      Fifth, the BICE provisions regarding lawsuits also violate the separation
of powers, as reflected in Alexander v. Sandoval and its progeny. Armstrong v.
Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1387-88 (2015) (“a private right
of action under federal law is not created by mere implication, but must be
‘unambiguously conferred’”) (quoting Gonzaga Univ. v. Doe, 536 U.S. 273, 283
(2002)); Alexander v. Sandoval, 532 U.S. 275, 286 (2001) (“private rights of
action to enforce federal law must be created by Congress”). Only Congress
may create privately enforceable rights, and agencies are empowered only to
enforce the rights Congress creates. See Alexander, 532 U.S. at 291. In ERISA,
Congress authorized private rights of action for participants and beneficiaries
of employer sponsored plans, 29 U.S.C. § 1132(a), but it did not so privilege
IRA owners under Title II. DOL may not create vehicles for private lawsuits
indirectly through BICE contract provisions where it could not do so directly.
Astra USA, Inc. v. Santa Clara Cty., 563 U.S. 110, 117-19 (2011). Yet DOL did
not apply the BIC Exemption enforceability provisions to ERISA employer-
sponsored plan fiduciaries precisely because ERISA already subjects those
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                                 No. 17-10238
entities to suits by private plaintiffs. 81 Fed. Reg. 21022. This action admits
DOL’s purpose to go beyond Congressionally prescribed limits in creating
private rights of action.
       Further, whether federal or state law may be the vehicle for DOL’s
BICE-enabled lawsuits is immaterial in the absence of statutory authorization.
If the IRA owners’ lawsuits are intended to be cognizable under federal law,
the absence of statutory basis is obvious. If the BICE-mandated provisions are
intended to authorize new claims under the fifty states’ different laws, they are
no more than an end run around Congress’s refusal to authorize private rights
of action enforcing Title II fiduciary duties. Paraphrasing the Supreme Court,
“[t]he absence of a private right to enforce [Title II fiduciary duties] would be
rendered meaningless if [IRA owners] could overcome that obstacle by suing to
enforce [DOL-imposed contractual] obligations instead. The statutory and
contractual obligations, in short, are one and the same.” Astra USA, Inc.,
563 U.S. at 117; see also Umland v. Planco Fin. Serv., Inc., 542 F.3d 59, 67 (3d
Cir. 2008)(reading FICA’s provisions into every employment contract would
contradict Congress’s decision not to expressly include a private right of
action). DOL’s assumption of non-existent authority to create private rights
of action was unreasonable and arbitrary and capricious.
      Although it is now disavowed by DOL, another unsustainable feature of
the BIC Exemption is the forced rejection, in transactions involving
transaction-based compensation, of contractual provisions that would have
allowed arbitration of class action claims. This contractual condition violates
the Federal Arbitration Act. The Supreme Court has broadly applied the
Federal Arbitration Act’s promotion of voluntary arbitration agreements.
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).
State law provisions that have attempted to condition or limit the availability
of an arbitral forum have been consistently struck down. See, e.g, AT&T
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                                 No. 17-10238
Mobility, Inc. v. Concepcion, 563 U.S. 333, 336 (2011) (conditions on class-wide
arbitration struck down); OPE Int’l LP v. Chet Morrison Contactors, Inc.,
258 F.3d 443, 447 (5th Cir. 2001) (state may not condition enforcement of an
arbitration agreement on absence of a forum selection clause). That DOL has
retreated from its overreach (although not yet by formal rule amendment) does
not detract from the impermissible nature of the provisions in the first place.
See also Thrivent Fin. for Lutherans v. Acosta, No. 16-cv-03289, 2017 WL
5135552 (D. Minn. Nov. 3, 2017) (granting injunction against enforcement of
the BICE exemption anti-arbitration condition).
      The sixth “unreasonable” feature of the Fiduciary Rule lies in DOL’s
decision to outflank two Congressional initiatives to secure further oversight
of broker/dealers handling IRA investments and the sale of fixed-indexed
annuities. The 2010 Dodd Frank Act amended both the Securities Exchange
Act and the Investment Advisers Act of 1940, empowering the SEC to
promulgate enhanced, uniform standards of conduct for broker-dealers and
investment advisers who render “personalized investment advice about
securities to a retail customer….” Dodd-Frank Act Sec. 913(g)(1), 124 Stat.
1827-28 (2010). Significantly, Dodd-Frank prohibits SEC from eliminating
broker-dealers’ “commission[s] or other standard compensation.” Dodd-Frank
Act Sec. 913(g)(2), 124 Stat. at 1828 (2010).
      Another provision of Dodd-Frank was spawned by a federal court’s
rejection of an SEC initiative to regulate fixed indexed annuities as securities.
See Am. Equity Inv. Life Ins. v. SEC, 613 F.3d 166, 179 (D.C. Cir. 2010). In
Dodd-Frank, Congress opted to defer such regulation to the states, which have
traditionally and under federal law borne responsibility for thoroughgoing
supervision of the insurance business. Section 989J accordingly provides that
“fixed indexed annuities sold in states that adopted the National Association
of Insurance Commissioners’ enhanced model suitability regulations, or
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                                 No. 17-10238
companies following such regulations, shall be treated as exempt securities not
subject to federal regulation.” Dodd-Frank Sec. 989J, 124 Stat. 1376, 1949-50
(2010).
      The Fiduciary Rule conflicts with both of these efforts. The SEC has the
expertise and authority to regulate brokers and dealers uniformly. DOL has
no such statutory warrant, but far from confining the Fiduciary Rule to IRA
investors’ transactions, DOL’s regulations effect dramatic industry-wide
changes because it is impractical to separate IRA transactions from non-IRA
securities advice and brokerage. Rather than infringing on SEC turf, DOL
ought to have deferred to Congress’s very specific Dodd-Frank delegations and
conferred with and supported SEC practices to assist IRA and all other
individual   investors.   By   presumptively    outlawing     transaction-based
compensation as “conflicted,” the Fiduciary Rule also undercuts the Dodd-
Frank provision that instructed SEC not to prohibit such standard forms of
broker-dealers’ compensation. And in direct conflict with Congress’s approach
to fixed indexed annuities, DOL’s regulatory strategy not only deprives sellers
of those products of the enhanced PTE 84-24 exemption but it also subjects
them to the stark alternatives of using the BIC Exemption, creating entirely
new compensation schemes, or withdrawing from the market. While Congress
exhibited confidence in the states’ insurance regulation, DOL criticizes the
Dodd-Frank provisions as “insufficient” to protect the “subset” of retirement-
related fixed-indexed annuities transactions within DOL’s purview. Certainly,
however, most such products are sold to retirement investors, so DOL is
occupying the Dodd-Frank turf.
      DOL contends that legislation pertaining to the SEC does not detract
from its authority to regulate “fiduciaries” to IRA investors, but we are
unconvinced. Congress does not ordinarily specifically delegate power to one
agency while knowing that another federal agency stands poised to assert the
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                                      No. 17-10238
very same power. DOL’s direct imposition on the delegation to SEC is made
plain by the text of Dodd-Frank Section 913(g)(2), which states:
       The Commission may promulgate rules to provide that the
       standard of conduct for all brokers, dealers, and investment
       advisers, when providing personalized investment advice about
       securities to retail customers (and such other customers as the
       Commission may by rule provide), shall be to act in the best
       interest of the customer without regard to the financial or other
       interest of the broker, dealer, or investment adviser providing the
       advice. In accordance with such rules, any material conflicts of
       interest shall be disclosed and may be consented to by the
       customer. Such rules shall provide that such standard of conduct
       shall be no less stringent than the standard applicable to
       investment adviser[s] under sections 206(1) and (2) of this Act
       when providing personalized investment advice about securities,
       except the Commission shall not ascribe a meaning to the term
       customer that would include an investor in a private fund managed
       by an investment adviser, where such private fund has entered
       into an advisory contract with such adviser. The receipt of
       compensation based on commission or fees shall not, in and of
       itself, be considered a violation of such standard applied to a
       broker, dealer or investment adviser. (emphasis added)

As a major securities law treatise explains, the genesis of this provision was
an SEC initiative commencing in 2006 to address “Trends Blurring the
Distinction Between Broker-Dealers and Investment Advisers.” See LOUIS
LOSS, ET AL., 2 FUNDAMENTAL OF SECURITIES REGULATION 1090–94 (2011).
Congress was concerned to protect all retail investment clients, and there is no
evidence that Congress expected DOL to more restrictively regulate a trillion
dollar portion of the market when it delegated the general question to the SEC
(for broker-dealers and registered investment advisers) and conditionally
deferred to state insurance practices. 16


       16 DOL contends that “the views of a subsequent Congress form a hazardous basis for
inferring the intent of an earlier one.” United States v. Price, 361 U.S. 304, 313 (1960). In
this case, however, Congress made plain the comprehensive scope of its intent. Congress had
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                                      No. 17-10238
       Seventh, regardless of the precise status of a “major questions” exception
to Chevron analysis, see generally Josh Blackman, Gridlock, 130 HARV. L. REV.
241, 261 (2016), there is no doubt that the Supreme Court has been skeptical
of federal regulations crafted from long-extant statutes that exert novel and
extensive power over the American economy.                 See, e.g., King v. Burwell,
135 S. Ct. 2480, 2488-89 (2015) (exhibiting no deference to certain Affordable
Care Act regulations, because if Congress had wished to delegate to the IRS “a
question of deep ‘economic and political significance[,]’ . . . central to th[e]
statutory scheme, . . . it surely would have done so expressly”). The Court
rejected a Chevron Step Two “reasonableness” justification for EPA regulations
that “would bring about an enormous and transformative expansion in EPA’s
regulatory authority without clear congressional authorization.”                    UARG,
134 S. Ct. at 2444. The Court further stated, “[w]e expect Congress to speak
clearly if it wishes to assign to an agency decisions of vast economic and
political significance.” Id. (internal quotation omitted); see also FDA v. Brown
& Williamson Tobacco Corp., 529 U.S. 120, 160 (2000) (rejecting FDA bid to
regulate the tobacco industry); MCI Telecomms. Corp. v. AT&T Co., 512 U.S.
218, 234 (1994) (rejecting use of term “modify” in enabling statute to
“effectively…introduc[e]…a whole new regime of regulation”).
       These decisions are not, as DOL contends, distinguishable. They restate
fundamental principles deriving from the Constitution’s separation of powers
within the federal government. Congress enacts laws that define and, equally
important, circumscribe the power of the Executive to control the lives of the



to be aware of the enormous impact of IRA investments on the overall market for personalized
investment advice to retail customers. It is unreasonable to presume Congress would not
have referred to—or carved out--DOL’s claimed broad power over ERISA Title II
transactions. Instead, the lack of any reference or carve-out in Dodd-Frank strongly suggests
Congress, like DOL itself (until after 2010), did not suppose such DOL power was hidden in
the interstices of ERISA.
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                                 No. 17-10238
citizens. When agencies within the Executive Branch defy Congressional
limits, they lord it over the people without proper authority. Most instances of
regulatory activity, no doubt, are underpinned by direct or necessary
consequences of enabling statutes. But the guiding inquiry under Chevron
Step Two is whether Congress intended to delegate interpretive authority over
a question to the agency asserting deference. City of Arlington, 133 S. Ct. at
1868. It is not hard to spot regulatory abuse of power when “an agency claims
to discover in a long-extant statute an unheralded power to regulate a
significant portion of the American economy….” UARG, 134 S. Ct. at 2444
(internal quotation omitted).
      DOL has made no secret of its intent to transform the trillion-dollar
market for IRA investments, annuities and insurance products, and to regulate
in a new way the thousands of people and organizations working in that
market. Large portions of the financial services and insurance industries have
been “woke” by the Fiduciary Rule and BIC Exemption. DOL utilized two
transformative devices: it reinterpreted the forty-year old term “investment
advice fiduciary” and exploited an exemption provision into a comprehensive
regulatory framework. As in the UARG case, DOL found “in a long-extant
statute an unheralded power to regulate a significant portion of the American
economy.”    And, although lacking direct regulatory authority over IRA
“fiduciaries,” DOL impermissibly bootstrapped what should have been safe
harbor criteria into “backdoor regulation.” Hearth, Patio & Barbecue Ass’n. v.
US Dep’t of Energy, 706 F.3d 499, 507-08 (D.C. Cir. 2013). The Fiduciary Rule
thus bears hallmarks of “unreasonableness” under Chevron Step Two and
arbitrary and capricious exercises of administrative power.
                                CONCLUSION
      The APA states that a “reviewing court shall…hold unlawful and set
aside agency action…found to be…arbitrary, capricious,…not in accordance
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                                No. 17-10238
with law” or “in excess of statutory …authority[] or limitations.” 5 U.S.C.
§ 706(2)(A), (C).   DOL makes no argument concerning severability of the
provisions making up the Fiduciary Rule and BICE exemption apart from the
illegal arbitration waiver.   In any event, this comprehensive regulatory
package is plainly not amenable to severance. Based on the foregoing
discussion, we REVERSE the judgment of the district court and VACATE the
Fiduciary Rule in toto.
                    JUDGMENT REVERSED; FIDUCIARY RULE VACATE




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                                 No. 17-10238


CARL E. STEWART, Chief Judge, dissenting:
      Over the last forty years, the retirement-investment market has
experienced a dramatic shift toward individually controlled retirement plans
and accounts. Whereas retirement assets were previously held primarily in
pension plans controlled by large employers and professional money managers,
today, individual retirement accounts (“IRAs”) and participant-directed plans,
such as 401(k)s, have supplemented pensions as the retirement vehicles of
choice, resulting in individual investors having greater responsibility for their
own retirement savings. This sea change within the retirement-investment
market also created monetary incentives for investment advisers to offer
conflicted advice, a potentiality the controlling regulatory framework was not
enacted to address. In response to these changes, and pursuant to its statutory
mandate to establish nationwide “standards . . . assuring the equitable
character” and “financial soundness” of retirement-benefit plans, 29 U.S.C. §
1001, the Department of Labor (“DOL”) recalibrated and replaced its previous
regulatory framework. To better regulate conflicted transactions as concerns
IRAs and participant-directed retirement plans, the DOL promulgated a
broader, more inclusive regulatory definition of investment-advice fiduciary
under the Employee Retirement Income Security Act of 1974 (“ERISA”) and
the Internal Revenue Code (“the Code”).
      Despite the relevant context of time and evolving marketplace events,
Appellants and the panel majority skew valid agency action that demonstrates
an expansive-but-permissible shift in DOL policy as falling outside the
statutory bounds of regulatory authority set by Congress in ERISA and the
Code. Notwithstanding their qualms with these regulatory changes and the
effect the DOL’s exercise of its regulatory authority might have on certain
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                                 No. 17-10238


sectors of the financial services industry, the DOL’s exercise was nonetheless
lawful and consistent with the Congressional directive to “prescribe such
regulations as [the DOL] finds necessary or appropriate to carry out [ERISA’s
provisions].” 29 U.S.C. § 1135. Because I do not share the panel majority’s
concerns about the DOL’s amended regulatory framework, I respectfully
dissent.
                                      I.
      A comprehensive recitation of the relevant regulatory and statutory
background can be found in the district court’s opinion. See Chamber of
Commerce of the United States of America, et al. v. Hugler, et al., 231 F. Supp.
3d 152 (N.D. Tex. Feb. 8, 2017). This appeal primarily turns on the DOL’s
interpretation of the parallel definitions of “investment-advice fiduciary” in
ERISA and the Code. See 29 U.S.C. § 1002(21)(A)(ii); 26 U.S.C. § 4975(e)(3).
Those provisions define an investment-advice fiduciary as one who “renders
investment advice for a fee or other compensation, direct or indirect, with
respect to any moneys or other property of such plan, or has any authority or
responsibility to do so.” Id. This statutory definition deliberately casts a wide
net in assigning fiduciary responsibility with respect to plan assets. See
Fiduciary Rule, 81 Fed. Reg. 20,954. Thus, any person who “renders
investment advice for a fee or other compensation, direct or indirect,” is an
investment-advice fiduciary, “regardless of whether they have direct control
over the plan’s assets, and regardless of their status as an investment adviser
or broker under federal securities laws.” Id.
      For 41 years, the DOL employed a five-part test to determine whether a
person is an investment-advice fiduciary under ERISA and the Code, and that
test limited the reach of the statutes’ prohibited transaction rules to those who
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rendered advice “on a regular basis,” and to instances where such advice
“serve[d] as a primary basis for investment decisions with respect to plan
assets.” See 29 C.F.R. § 2510.3–21(c)(1) (2015). This regulation “was adopted
prior to the existence of participant-directed 401(k) plans, the widespread use
of IRAs, and the now commonplace rollover of plan assets” from Title I plans
to IRAs, thus leaving out of ERISA’s regulatory reach many investment
professionals, consultants, and advisers who play a critical role in guiding
plans and IRA investments. Fiduciary Rule, 81 Fed. Reg. 20,946.
      The rule challenged on appeal addresses these and other changes in the
retirement investment advice market by, inter alia, abandoning the five-part
test in favor of a definition of fiduciary that includes “recommendation[s] as to
the advisability of acquiring . . . investment property that is rendered pursuant
to [an] . . . understanding that the advice is based on the particular investment
needs of the advice recipient.” 29 C.F.R. § 2510.3–21(a) (2016). A
“recommendation,” in turn, includes a “communication that, based on its
content, context, and presentation, would reasonably be viewed as a suggestion
that the advice recipient engage in or refrain from taking a particular course
of action.” Id. § 2510.3–21(b)(1) (emphasis added). Importantly, the regulatory
definition of “investment-advice fiduciary” thoroughly and specifically
describes    communications       that    would     otherwise     be     covered
“recommendations,” and gives examples of interactions and relationships that,
under the broad regulatory definition of fiduciary, would qualify as
“recommendations” but which are not “appropriately regarded as fiduciary in
nature” under ERISA and are therefore circumscribed from the regulation’s




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definition. See 29 C.F.R. § 2510.3–21(b)–(c) (2016); Fiduciary Rule, 81 Fed. Reg.
20,971. 1
       Appellants, organizations and associations representing businesses and
financial service providers who previously fell outside the DOL’s definition of
fiduciary but who are now governed by certain of the rule’s new regulatory
requirements, challenge the expansion. The panel majority finds many of
Appellants’ arguments persuasive and vacates the DOL’s rule as unreasonable
under Chevron, USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837 (1984), and as arbitrary and capricious agency action under the
Administrative Procedure Act, 5 U.S.C. § 706 (“APA”). 2 Because I believe the
DOL’s new regulations are a statutorily permissible and reasonable exercise of
its regulatory authority, I would affirm the district court’s judgment.
                                                II.
       As the panel majority acknowledges, the DOL’s authority to implement
a new definition of investment-advice fiduciary implicates the two-step


       1 This is an important point. The DOL has noted that the “proposed general definition
of investment advice was intentionally broad to avoid weaknesses of the 1975 regulation and
to reflect the broad sweep of the statutory text.” Fiduciary Rule, 81 Fed. Reg. 20,971.
Realizing that “standing alone” the new definition “could sweep in some relationships that
are not appropriately regarded as fiduciary in nature” and that the DOL did “not believe
Congress intended to cover as fiduciary relationships,” the DOL created “carve-outs” to
exclude specific activities and communications from the definition of fiduciary investment
advice. Fiduciary Rule, 81 Fed. Reg. 20,948–49. After receiving comments on that proposal,
the DOL eliminated the term “carve-out” from the final regulation and articulated with
greater specificity the nature of communications and activities that would be regarded as
fiduciary-creating “recommendations” while expressly proscribing conduct and relationships
that ERISA was not enacted to prevent. See Fiduciary Rule, 81 Fed. Reg. 20,949; 29 C.F.R. §
2510.3–21(b)–(c).
       2   Given the primary basis of the panel majority’s holding, their opinion does not address
Appellants’ First Amendment claims. Because I would uphold the DOL’s regulations, I would also
reject Appellants’ First Amendment claims as either waived or otherwise without merit.

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analytical framework established in Chevron. “First, always, is the question
whether Congress has directly spoken to the precise question at issue. If the
intent of Congress is clear, that is the end of the matter; for the court, as well
as the agency, must give effect to the unambiguously expressed intent of
Congress.” Chevron, 467 U.S. at 842–43. However, “if the statute is silent or
ambiguous with respect to the specific issue, the question for the court is
whether the agency’s answer is based on a permissible construction of the
statute.” Id. at 843 (emphasis added). The agency’s view “governs if it is a
reasonable interpretation of the statute—not necessarily the only possible
interpretation, nor even the interpretation deemed most reasonable by the
courts.” Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 218 (2009) (emphasis
in original). Importantly, a court may not substitute its own construction of a
statutory provision of a reasonable interpretation made by the administrator
of an agency. Chevron, 467 U.S. at 844.
      The Chevron inquiry necessarily begins with the text of the statutory
definition of investment-advice fiduciary. See 29 U.S.C. § 1002(21)(A)(ii); 26
U.S.C. § 4975(e)(3). Contrary to the panel majority’s protestation, nothing in
the statutory text forecloses the DOL’s current interpretation. The statute does
not define the pertinent phrase “renders investment advice,” and ERISA
expressly authorizes the DOL to adopt regulations defining “technical and
trade terms used” in the statute. 29 U.S.C. § 1135. As a matter of ordinary
usage, there can be no “serious dispute” that someone who provides “[a]
recommendation as to the advisability of acquiring, holding, disposing of, or
exchanging, securities or other investment property,” 29 C.F.R. 2510.3–21(a),
is “render[ing] investment advice.” See Nat’l Ass’n for Fixed Annuities v. Perez,
217 F. Supp. 3d 1, 23 (D.D.C. Nov. 4, 2016). Additionally, although the panel
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                                      No. 17-10238


majority dismisses the use of dictionary definitions as an aid in interpreting
the statutory text, plain language definitions highlight the uniformity between
the statutory text and the DOL’s regulations. 3 The dictionary defines “advice”
as an “opinion or recommendation offered as a guide to action [or] conduct,”
and it defines “investment” as “the investing of money or capital in order to
gain profitable returns.” See Random House Dictionary of the English
Language (2d ed. 1987). The DOL’s interpretation of “investment advice” all
but replicates those definitions by classifying as fiduciaries only those who
provide “recommendations” to investors who reasonably rely on their advice
and expertise. See 29 C.F.R. § 2510.3–21(a)–(c). Nothing in the phrase “renders
investment advice for a fee or other compensation” suggests that the statute
applies only in the limited context accepted by the panel majority.
       That the text of ERISA does not unambiguously foreclose the DOL’s
regulatory interpretation of fiduciary satisfies step one of Chevron.
Nonetheless, the panel majority reaches additional erroneous conclusions to
make a case for a contrary holding. The panel majority primarily contends that
the DOL’s new interpretation is inconsistent with common law fiduciary
standards that Congress contemplated and retained in enacting ERISA. Under


       3 The panel majority repudiates the use of dictionary definitions based on the Supreme
Court’s preference for common law understandings under ERISA in Varity Corp. v. Howe,
516 U.S. 489 (1996). There, the Supreme Court was analyzing whether an employer’s actions
fell within the statutory definition of fiduciary, and specifically whether the employer was
acting as a plan “administrator” at the time it rendered fraudulent advice related to its
employees’ retirement plans. Varity Corp., 516 U.S. at 492–95. Because the terms “fiduciary”
and specifically trust “administration” were given a legal meaning under the common law,
the Court proceeded to assess the employer’s actions using standards set under common law
trust principles related to plan administration. Id. at 502. Here, because the common law
does not directly inform what constitutes an “investment-advice fiduciary” under ERISA, the
DOL’s reliance on dictionary definitions to interpret the term is not inconsistent with or
contrary to Varity Corp.
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those common law standards, fiduciary status turns on the existence of a
relationship of trust and confidence between the fiduciary and the client, a
relationship that the panel majority maintains never materializes when a
financial services professional does not engage in the type of ongoing
transactional   relationships    that   plan    managers    and    administrators
traditionally do.
      No one seriously challenges that the courts have, at times, looked to the
common law of trusts in interpreting the nature and scope of fiduciary duties
under ERISA. The Supreme Court has “recognize[d] that the [ ] fiduciary duties
[found in ERISA] draw much of their content from the common law of trusts,”
which “governed most benefit plans before ERISA’s enactment.” Varity Corp.
v. Howe, 516 U.S. 489, 496 (1996). But the Court has “also recognize[d] . . . that
trust law does not tell the entire story,” and that “ERISA’s standards and
procedural protections partly reflect a congressional determination that the
common law of trust did not offer completely satisfactory protection.” Id. at
497. Accordingly, the Court concluded that “[i]n some instances, trust law . . .
offer[s] only a starting point, after which courts must go on to ask whether, or
to what extent, the language of the statute, its structure, or its purposes require
departure from common-law trust requirements.” Id. (emphasis added).
      One area in which Congress has departed from the common law of trusts
is with the statutory definition of “fiduciary.” ERISA does not define “fiduciary”
“in terms of formal trusteeship, but in functional terms of control and authority
over the plan, . . . thus expanding the universe of persons subject to fiduciary
duties . . .” Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993) (emphasis
added). That is, contrary to the panel majority’s interpretation, Mertens
recognizes that although Congress intended to incorporate the core principles
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                                     No. 17-10238


of fiduciary conduct that were developed in the common law of trusts, Congress
modified this approach where appropriate for employee benefit plans,
including in defining who qualifies as a fiduciary under ERISA. Indeed, ten
years before Mertens, a panel of this court recognized that ERISA imposes a
duty on a broader class of fiduciaries than did trust law. See Donovan v.
Cunningham, 716 F.2d 1455, 1464 n.15 (5th Cir. 1983) (noting that “ERISA’s
modifications of exiting trust law include imposition of duties upon a broader
class of fiduciaries”) (citing 29 U.S.C. § 1002(21) (1976)). The panel majority
now interprets Mertens very narrowly, effectively limiting its interpretation of
the statutory definition of “fiduciary” to reach only plan managers,
administrators, and other comparable roles. Such a holding, however, runs
counter to the very clear language in Mertens, which interpreted ERISA to
define fiduciaries as “not only the persons named as fiduciaries by a benefit
plan . . . but also anyone else who exercises discretionary control or authority
over the plan’s management, administration, or assets.” Mertens, 508 U.S. at
262. Under the current regime, investment advisers of the sort covered by the
new regulatory definition of “investment-advice fiduciary” exercise such
control. Because the text of ERISA goes beyond the common law, and because
the purpose of the statute does not compel a different result, the textual
rendering of “fiduciary” controls and, as explained, does not unambiguously
foreclose the DOL’s interpretation of “investment-advice fiduciary.” See Varity
Corp., 516 U.S. at 496–97. 4


      4  Accepting as true that the statutory definition of “investment-advice fiduciary”
continues to be informed by the common law, I am not persuaded that the DOL’s
interpretation conflicts with common law trust principles. Throughout the new regulation,
the DOL emphasizes that “ERISA safeguards plan participants by imposing trust law
standards of care and undivided loyalty on plan fiduciaries,” Fiduciary Rule, 81 Fed. Reg.
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       It is only after invoking common law trust principles that the panel
majority turns to the statutory text. Instead of assessing the DOL’s regulations
based on the plain language of the statute, the panel majority relies on several
extra-statutory sources which purportedly shed light on how an investment-
advice fiduciary should be defined. In so doing, the panel majority maintains
that the relevant provisions in ERISA and the Code contemplated a hard
distinction between investment advisers and those who merely sell retirement
products, and that the DOL dispensed with this distinction in the new rule by
conferring fiduciary status on one-time sellers of products.
       As an initial matter, the new rule does not make one a fiduciary for
selling a product without a recommendation upon which an investor might
reasonably rely. See Fiduciary Rule, 81 Fed. Reg. 20,984; see also 29 C.F.R. §
2510.3–21(b). Thus, “if a retirement investor asked a broker to purchase a . . .
security, the broker would not become a fiduciary investment adviser merely
because the broker . . . executed the securities transaction. Such ‘purchase and
sales’ transactions do not include any investment advice component.” Id.
(emphasis added). That the panel majority’s primary concern is expressly
addressed by the plain language of the new rule is alone enough to render
unavailing any reliance on extra-statutory contemporary understandings of



20946, and proscribed certain communications from the new definition of investment-advice
fiduciary to “avoid[] burdening activities that do not implicate relationships of trust.”
Fiduciary Rule, 81 Fed. Reg. 20,950. Additionally, the DOL found that “[i]n the retail IRA
marketplace, growing consumer demand for personalized advice . . . has pushed brokers to
offer comprehensive guidance services rather than just transactional support.” Fiduciary
Rule, 81 Fed. Reg. at 20,949 (emphasis added). These references to common law trust
principles indicate the DOL’s intention to regulate only those relationships in which investors
rely on the advice and recommendation of financial professionals when making decisions
concerning their retirement plans. Nothing in the regulations explicitly conflict with that
standard.
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the term “investment advice” as inherently and necessarily distinctive from
pure sales activity (which, again, the new rule does not purport to regulate). In
any event, the sources cited by the panel majority independently undermine
its ultimate conclusion.
      The panel majority first highlights the Investment Advisers Act of 1940
(“the IAA”), which precedes the disputed regulations by some 76 years and
which informed Congress’s use of the phrase “renders investment advice for a
fee or other compensation” in ERISA and the Code. The IAA defines an
“investment adviser” as “any person who, for compensation, engages in the
business of advising others, either directly or through publications or writings,
as to the value of securities or as to the advisability of investing in, purchasing,
or selling securities,” 15 U.S.C. § 80b–2(a)(11), and specifically excludes from
that definition “any broker or dealer whose performance of such services is
solely incidental to the conduct of his business as a broker or dealer and who
receives no compensation therefor.” Id. From this, the panel majority gleans
that the distinction in the IAA between “investment advisers compensated for
rendering advisory services” and “salespersons compensated only for their
sales” was incorporated by Congress into the concepts of ERISA. This logic is
misplaced. “The distinction between advisers and brokers contained in the
[IAA] was created when Congress define[d] ‘investment adviser’ broadly and
then create[d] . . . a precise exemption for broker-dealers.” Perez, 217 F. Supp.
3d at 26 (quoting Fin. Planning Ass’n v. SEC, 482 F.3d 481, 489 (D.C. Cir.
2007)) (internal quotations omitted). In ERISA and the Code, however,
Congress omitted such an exclusion from the definition of “fiduciary.” See 29
U.S.C. § 1002(21)(A); 26 U.S.C. § 4975(e)(3)(B). Thus, to the extent Congress
had the IAA in mind as a model when it enacted the statutory definition of
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                                 No. 17-10238


“fiduciary” found in ERISA, that the definitions do not exactly align, and
specifically that ERISA’s definition mysteriously omits any statutory exclusion
of broker-dealers, counsels against construing ERISA’s definition of “fiduciary”
in the way advanced by the panel majority. See Perez, 217 F. Supp. 3d at 26.
      Additionally, the panel majority’s reliance on the DOL’s original
regulation, SEC interpretations of “investment advice for a fee,” and case law
tying investment advice for a fee to “ongoing relationships between adviser and
client” are similarly unavailing. First, because the DOL limited the scope of its
original regulation such that it did not touch the breadth of the statutory
definition of fiduciary, all interpretations rendered pursuant to that regulation
will necessarily be limited in a way that the new regulation seeks to remedy.
Further, that the SEC and case law have interpreted investment advice for a
fee as implicating ongoing relationships between an adviser and his client does
not take the entire statutory provision into consideration. ERISA defines
“investment-advice fiduciary” as one who renders investment advice “for a fee
or other compensation, direct or indirect.” 29 U.S.C. § 1002(21)(A)(ii) (emphasis
added). This phrase contemplates compensation structures other than those
incorporating fees, i.e. commissions, and which are built on relationships that
are more than mere buyer-seller interactions, but which do not require ongoing
intimate relationships.
      The panel majority also emphasizes that the investment-advice
provision is “bookended” by two separate definitions of fiduciary which
purportedly incorporate common law trust principles and apply to individuals
vested with responsibilities to manage and control the plan. From this, the
panel majority extrapolates that the investment advice prong requires the
existence of a “special” relationship so as to harmonize with the statutory
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definitions of fiduciary that come before and after it. However, that the other
two prongs of the statutory definition of “fiduciary” describe those involved in
managing or administering a plan provides support for the opposite conclusion.
Because the other disjunctive prongs of the statutory definition already
address “the ongoing management [and administration] of an ERISA plan,”
the panel majority’s reading of the “investment advice” prong would strip that
prong of independent meaning and render it superfluous. See, e.g., U.S. v.
Menasche, 348 U.S. 528, 538–39 (1955) (“It is our duty to give effect, if possible,
to every clause and word of a statute.”) (citation and internal quotation marks
omitted).
      In sum, the statutory definition of “fiduciary” does not unambiguously
foreclose the DOL’s updated regulatory definition of “investment-advice
fiduciary.” The text and structure of the statute support this conclusion, and
the panel majority’s reliance on common law presumptions and extra-statutory
interpretations of “renders investment advice for a fee” do not upset this
conclusion. Accordingly, I conclude that the DOL acted well within the confines
set by Congress in implementing the challenged regulatory package, and said
package should be maintained so long as the agency’s interpretation is
reasonable.
                                       III.
      In applying Chevron step two to cases where an agency has changed its
existing policy, the court defers to the agency’s permissible interpretation, but
only if the agency has offered a reasoned explanation for why it chose that
interpretation. See Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125
(2016). Analysis at this step is analogous to the “arbitrary or capricious”
standard under the APA. See Judulang v. Holder, 565 U.S. 42, 52 n.7 (2011).
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      The DOL’s interpretation of “renders investment advice” is reasonably
and thoroughly explained. The new interpretation fits comfortably with the
purpose of ERISA, which was enacted with “broadly protective purposes” and
which “commodiously imposed fiduciary standards on persons whose actions
affect the amount of benefits retirement plan participants will receive.” Perez,
217 F. Supp. 3d at 28 (quoting John Hancock Mut. Life Ins. Co. v. Harris Tr. &
Sav. Bank, 510 U.S. 86, 96 (1993)). In light of changes in the retirement
investment advice market since 1975, mentioned above, the DOL reasonably
concluded that limiting fiduciary status to those who render investment advice
to a plan or IRA “on a regular basis” risked leaving retirement investors
inadequately protected. This is especially so given that “one-time transactions
like rollovers will involve trillions of dollars over the next five years and can be
among the most significant financial decisions investors will ever make.” Perez,
217 F. Supp. 3d at 28 (citing Fiduciary Rule, 81 Fed. Reg. at 20,954–55). Given
DOL’s reasoned explanation for choosing its most recent interpretation, I
would hold that the agency’s action passes muster under step two of Chevron.
      Notwithstanding the DOL’s reasoned explanation for the new
regulations, the panel majority maintains that the DOL acted unreasonably
and arbitrarily when it promulgated the new fiduciary rule and, in a strained
attempt to justify this conclusion, the panel majority disregards the
requirement of showing judicial deference under Chevron by highlighting
purported issues with other provisions of the regulation. Each of the panel
majority’s positions fails for reasons more fully explained below.


      A. PTE 84–24, the BIC Exemption, and the DOL’s Exemption Authority


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      Beyond its qualms with the new regulatory delineations on who qualifies
as an investment-advice fiduciary, the panel majority takes substantial issue
with the DOL’s exercise of its exemption authority to amend PTE 84–24 and
create the new BIC Exemption. The DOL may supplement statutorily created
exemptions by implementing new exemptions under the prohibited transaction
rules, which apply to retirement investment instruments under Titles I and II
and “supplement[ ] the fiduciary’s general duty of loyalty to the plan’s
beneficiaries . . . by . . . barring certain transactions deemed ‘likely to injure
the pension plan.’” Harris Tr. & Sav. Bank, 530 U.S. at 241–42. ERISA and
the Code authorize the DOL to adopt “conditional or unconditional
exemption[s]” for otherwise prohibited transactions, the only limitation on this
expansive authority being that the exemption must be “administratively
feasible,” “in the interest of the plan and its participants and beneficiaries,”
and “protective of the rights of [plan] participants and beneficiaries.” 29 U.S.C.
§ 1108(a); 26 U.S.C. § 4975(c)(2). Consistent with this broad authority, the DOL
granted exemptions for otherwise prohibited transactions in the new
regulatory package, but conditioned those exemptions on, among other things,
a requirement that the fiduciary take on the same duties of “prudence” and
“loyalty” that bind Title I fiduciaries. See Fiduciary Rule, 81 Fed. Reg. 21,077,
21,176. This condition is only truly meaningful as applied to advisers under
Title II, which must, under the new rule, satisfy new requirements to engage
in transactions that would otherwise be prohibited.
      The panel majority concludes that because the DOL is given no direct
statutory authority to regulate IRA plan fiduciaries under Title II, and because
the DOL has used its exemption authority to “subject most of these newly
regulated actors and transactions to a raft of affirmative obligations,” the
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agency necessarily abused its exemption authority. However, the panel
majority’s interpretation of the DOL’s use of its exemption authority all but
ignores the statutory directive given to the DOL to create “conditional or
unconditional” exemptions from otherwise prohibited transactions. ERISA and
the Code do not qualify the form conditions must take or limit the scope of the
DOL’s exemption authority to mirror specific exemptions created by Congress,
leaving it up to the agency to decide whether to impose affirmative or negative
conditions (or none at all) on exemptions from prohibited transactions. And
Congress’s imposition of broad regulatory power over Title I plans is not
dispositive of whether Congress intended to foreclose the DOL from requiring
adherence to those duties as a condition of granting an exemption. 5
       Further, the panel majority accepts Appellants’ contention that the BIC
Exemption creates a private right of action in contravention of Alexander v.
Sandoval, 532 U.S. 275 (2001) by requiring the inclusion of specific contractual


       5 Throughout its opinion, the panel majority represents that the BIC Exemption was
created to draw back an otherwise “overinclusive” regulatory definition of investment-advice
fiduciary, and that without the BIC Exemption, the new definition could “sweep in some
relationships that are not appropriately regarded as fiduciary in nature and that the
Department does not believe Congress intended to cover as fiduciary relationships.” See Maj.
Opn. at p. 9 (quoting Fiduciary Rule, 81 Fed. Reg. 20,948); see also Maj. Opn. at 35. However,
the quoted language upon which the panel majority’s opinion relies does not cite the BIC
Exemption as the regulatory provision intended to keep the new definition of investment-
advice fiduciary in line with the statutory definition of the same, but to certain exclusions of
communications between advisers and plan beneficiaries within the new regulatory
definition of investment-advice fiduciary. Note 1, supra, describes how the regulatory
definition of investment-advice fiduciary explicitly circumscribes those “relationships that
are not appropriately regarded as fiduciary in nature.” The BIC Exemption is not the source
of this exclusion (which serves to specify who is and who is not an investment-advice
fiduciary), but it is the new definition of investment-advice fiduciary itself that limits its own
reach. Relatedly, it is illogical to cite the BIC Exemption as creating an external limit on the
new definition of fiduciary, as the entire purpose of the exemption is to impose requirements
on parties who fall within the new definition of fiduciary (and consequently fall outside the
group of advisers who are excluded from the new definition).
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terms as a condition of qualifying for and receiving the prohibited transaction
exemption. However, the BIC Exemption does not create a private right of
action. “[I]t merely dictates terms that otherwise-conflicted financial
institutions must include in written contracts with IRA and other [Title II]
owners in order to qualify for the exemption.” Perez, 217 F. Supp. 3d at 36. Any
action brought to enforce the terms of the written contract created pursuant to
the BIC Exemption would be brought under state law, and state law would
ultimately control the enforceability of any of the required contractual terms.
      The panel majority also urges that in moving fixed indexed annuities
from PTE 84–24 to the BIC Exemption, the DOL failed to account for state
regulation of sales of annuities. See Maj. Opn. at 41–42 (citing American Equity
Inv. Life Ins. Co. v. S.E.C., 613 F.3d 166 (D.C. Cir. 2010)). However, ERISA
contains no statutory requirement that the DOL check for efficiency when
changing which annuities qualify for a specific exemption, as was the case in
American Equity. Further, before making the relevant amendments to the
exemptions, the DOL comprehensively assessed existing securities regulation
for variable annuities, state insurance regulation of all annuities, and
consulted with numerous government and industry officials, including the
SEC, the Department of the Treasury, and the Consumer Financial Protection
Bureau, among others. The DOL found the protections prior to the current
rulemaking insufficient to protect investors and acted within its prerogative to
modify the regulatory regime as it deemed necessary.
      Similarly, the panel majority observes that because § 913(g) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Pub. Law. No. 111 –
203, 124 Stat. 1376 (2010) (“Dodd-Frank Act”) prohibits the SEC from adopting
a standard of conduct that disallows commissions for broker-dealers, it is
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implausible that Congress intended to allow the DOL, through ERISA, to
promulgate a regulation that would do just that. As an initial matter, the
DOL’s final rules do not prohibit commissions for broker-dealers. The rules
only modify already-existing exemptions from prohibited transactions. As has
been the case, if a person or entity qualifies for an exemption, the applicant
can still receive commissions and other forms of third party compensation.
Further, “[n]othing in the Dodd-Frank Act indicates that Congress intended to
preclude the DOL’s regulation of fiduciary investment advice under ERISA or
its application of such a regulation to securities brokers or dealers.” Fiduciary
Rule, 81 Fed. Reg. 20,990. In fact, “[the] Dodd-Frank Act specifically directed
the SEC to study the effectiveness of existing . . . regulatory standards of care
under other federal and state authorities,” § 913(b)(1), (c)(1), and “[t]he SEC
has . . . consistently recognized ERISA as an applicable authority in this area,
noting that advisers entering into performance fee arrangements with
employee benefit plans covered by [ERISA] are subject to the fiduciary
responsibility and prohibited transaction provisions of ERISA.” Id. (internal
quotation marks omitted).
      B. Questions of Deep “Economic and Political Importance”
      Finally, the panel majority’s contention that the DOL is using a “long-
extant” statute to implement an “enormous and transformative expansion in
regulatory authority without clear congressional authorization” is misplaced.
Maj. Opn. at 44–45. The panel majority relies on several Supreme Court cases
in support of this position but fails to recognize a meaningful distinction
between those opinions and the case sub judice: in each of these cases, the
relevant agency clearly exceeded the scope of delegation created by the
enabling statute. See Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2444
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(2014) (holding that “it would be patently unreasonable—not to say
outrageous—for [the] EPA to insist on seizing expansive power that it admits
the statute is not designed to grant,” and finding that a “long-extant statute
[did not give EPA] an unheralded power to regulate a significant portion of the
American economy”) (emphasis added); FDA v. Brown & Williamson Tobacco
Corp., 529 U.S. 120, 159–160 (2000) (rendering as invalid regulations in which
the FDA departed from statements it had made to Congress for over ninety
years that it did not have jurisdiction over the tobacco industry, and ignoring
that Congress had created a distinct regulatory scheme over the tobacco
industry and expressly rejected proposals to give the FDA such jurisdiction).
Here, in contrast, the DOL has acted within its delegated authority to regulate
financial service providers in the retirement investment industry—which it
has done since ERISA was enacted—and has utilized its broad exemption
authority to create conditional exemptions on new investment-advice
fiduciaries. That the DOL has extended its regulatory reach to cover more
investment-advice fiduciaries and to impose additional conditions on conflicted
transactions neither requires nor lends to the panel majority’s conclusion that
it has acted contrary to Congress’s directive.
                                      IV.
      The panel majority’s conclusion that the DOL exceeded its regulatory
authority by implementing the regulatory package that included a new
definition of investment-advice fiduciary and both modified and created new
exemptions to prohibited transactions is premised on an erroneous
interpretation of the grant of authority given by Congress under ERISA and
the Code. I would hold that the DOL acted well within its regulatory
authority—as outlined by ERISA and the Code—in expanding the regulatory
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definition of investment-advice fiduciary to the limits contemplated by the
statute, and would uphold the DOL’s implementation of the new rules.




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