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2018 WL 1325019Only the Westlaw citation is currently available.

United States Court of Appeals, Fifth Circuit.

CHAMBER OF COMMERCE OF the UNITEDSTATES OF AMERICA; Financial ServicesInstitute, Incorporated; Financial Services

Roundtable; Greater Irving-Las Colinas Chamber ofCommerce; Humble Area Chamber of Commerce,

doing business as Lake Houston Chamberof Commerce; Insured Retirement Institute;Lubbock Chamber of Commerce; Securities

Industry and Financial Markets Association; TexasAssociation of Business, Plaintiffs–Appellants

v.UNITED STATES DEPARTMENT OF

LABOR; R. Alexander Acosta, Secretary, U.S.Department of Labor, Defendants–AppelleesAmerican Council of Life Insurers; National

Association of Insurance and Financial Advisors;National Association of Insurance and Financial

Advisors—Texas; National Association ofInsurance and Financial Advisors—Amarillo;

National Association of Insurance and FinancialAdvisors—Dallas; National Association ofInsurance and Financial Advisors—Fort

Worth; National Association of Insuranceand Financial Advisors—Great Southwest;

National Association of Insurance and FinancialAdvisors—Wichita Falls; Plaintiffs–Appellants

v.United States Department of Labor;R. Alexander Acosta, Secretary, U.S.

Department of Labor, Defendants–AppelleesIndexed Annuity Leadership Council; Life

Insurance Company of the Southwest;American Equity Investment Life InsuranceCompany; Midland National Life Insurance

Company; North American Company for Lifeand Health Insurance, Plaintiffs–Appellants

v.R. Alexander Acosta, Secretary, U.S.Department of Labor; United States

Department of Labor, Defendants–Appellees

No. 17-10238|

FILED March 15, 2018

SynopsisBackground: Business groups brought action againstUnited States Department of Labor (DOL) challengingthe “fiduciary rule” that broadly reinterpreted the term“investment advice fiduciary.” The United States DistrictCourt for the Northern District of Texas, Barbara M.G.Lynn, Chief Judge, 231 F.Supp.3d 152, granted summaryjudgment for DOL. Business groups appealed.

[Holding:] The Court of Appeals, Edith H. Jones, CircuitJudge, held that DOL's expansion of the scope of its“fiduciary rule” to include a broker-dealer and insuranceagents conflicted with plain text of ERISA.

Judgment reversed and rule vacated.

Carl E. Stewart, Chief Judge, wrote dissenting opinion.

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

Attorneys and Law Firms

Eugene Scalia, Attorney, Paul Blankenstein, Jason J.Mendro, Gibson, Dunn & Crutcher, L.L.P., Washington,DC, Russell Harris Falconer, Attorney, Gibson, Dunn& Crutcher, L.L.P., Dallas, TX, for Plaintiffs–AppellantsChamber of Commerce of the United States ofAmerica, Financial Services Institute, Incorporated,Financial Services Roundtable, Greater Irving-LasColinas Chamber of Commerce, Humble Area Chamberof Commerce, doing business as Lake Houston Chamberof Commerce, Insured Retirement Institute, LubbockChamber of Commerce, Securities Industry and FinancialMarkets Association, and Texas Association of Business.

David W. Ogden, Esq., Kelly Patrick Dunbar, KevinLamb, WilmerHale, L.L.P., Washington, DC, AndreaJ. Robinson, WilmerHale, Boston, MA, for Plaintiffs–Appellants American Council of Life Insurers, NationalAssociation of Insurance and Financial Advisors,National Association of Insurance and FinancialAdvisors—Texas, National Association of Insurance

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and Financial Advisors—Amarillo, National Associationof Insurance and Financial Advisors—Dallas, NationalAssociation of Insurance and Financial Advisors—FortWorth, National Association of Insurance and FinancialAdvisors—Great Southwest, National Association ofInsurance and Financial Advisors—Wichita Falls.

Joseph Robert Guerra, Jennifer Jo Clark, Peter D.Keisler, Esq., Sidley Austin, L.L.P., Washington, DC,for Plaintiffs–Appellants Indexed Annuity LeadershipCouncil, Life Insurance Company of the Southwest,American Equity Investment Life Insurance Company,Midland National Life Insurance Company, MidlandNational Life Insurance Company, and North AmericanCompany for Life and Health Insurance.

Michael Shih, Michael S. Raab, U.S. Department ofJustice, Civil Division, Appellate Section, Washington,DC, for Defendants–Appellees United States Departmentof Labor and R. Alexander Acosta, Secretary,Department of Labor.

Cory L. Andrews, Senior Litigation Counsel, WashingtonLegal Foundation, Washington, DC, for Amicus CuriaeWashington Legal Foundation.

Mary Ellen E. Signorille, Senior Attorney, AARPFoundation Litigation, Washington, DC, for AmicusCuriae American Association of Retired Persons,American Association of Retired Persons Foundation,Americans for Financial Reform, Better Markets,Consumer Federation of America, and NationalEmployment Law Project.

Andrew B. Kay, Cozen O'Connor, P.C., Washington, DC,for Amicus Curiae Thrivent Financial for Lutherans.

Brendan Stephen Maher, Douglas D. Geyser, Esq., Stris &Maher, L.L.P., Dallas, TX, for Amicus Curiae FinancialPlanning Coalition.

Scott Lawrence Nelson, Allison M. Zieve, Public CitizenLitigation Group, Washington, DC, for Amicus CuriaePublic Citizen, Incorporated.

Deepak Gupta, Gupta Wessler, P.L.L.C., Washington,DC, for Amicus Curiae American Association for Justice.

Before STEWART, Chief Judge, and JONES andCLEMENT, Circuit Judges.

Opinion

EDITH H. JONES, Circuit Judge:

*1 Three business groups 1 filed suits challenging the“Fiduciary Rule” promulgated by the Department ofLabor (DOL) in April 2016. The Fiduciary Rule is apackage of seven different rules that broadly reinterpretthe term “investment advice fiduciary” and redefineexemptions to provisions concerning fiduciaries thatappear in the Employee Retirement Income Security Actof 1974, Pub. L. No. 93-406, 88 Stat. 829 (ERISA),codified as amended at 29 U.S.C. § 1001 et seq, and theInternal Revenue Code, 26 U.S.C. § 4975. The statedpurpose of the new rules is to regulate in an entirely newway hundreds of thousands of financial service providersand insurance companies in the trillion dollar marketsfor ERISA plans and individual retirement accounts(IRAs). The business groups’ challenge proceeds onmultiple grounds, including (a) the Rule’s inconsistencywith the governing statutes, (b) DOL’s overreaching toregulate services and providers beyond its authority, (c)DOL’s imposition of legally unauthorized contract termsto enforce the new regulations, (d) First Amendmentviolations, and (e) the Rule’s arbitrary and capricioustreatment of variable and fixed indexed annuities.

The district court rejected all of these challenges. Findingmerit in several of these objections, we VACATE the Rule.

I. BACKGROUND

As might be expected by a Rule that fundamentallytransforms over fifty years of settled and hitherto legalpractices in a large swath of the financial services andinsurance industries, a full explanation of the relevantbackground is required to focus the legal issues raisedhere.

Congress passed ERISA in 1974 as a “comprehensivestatute designed to promote the interests of employeesand their beneficiaries in employee benefit plans.” Shawv. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890,77 L.Ed.2d 490 (1983). Title I of ERISA confers on theDOL far-reaching regulatory authority over employer- orunion-sponsored retirement and welfare benefit plans. 29U.S.C. §§ 1108(a)-(b), 1135. A “fiduciary” to a Title I planis subject to duties of loyalty and prudence. 29 U.S.C. §

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1104(a)(1)(A)-(B). Fiduciaries may not engage in several“prohibited transactions,” including transactions in whichthe fiduciary receives a commission paid by a third partyor compensation that varies based on the advice provided.29 U.S.C. § 1106(b)(3). ERISA authorizes lawsuits by theDOL, plan participants or beneficiaries against fiduciariesto enforce these duties. 29 U.S.C. § 1132(a).

ERISA Title II created tax-deferred personal IRAs andsimilar accounts within the Internal Revenue Code. 26

U.S.C. § 4975(e)(1)(B). 2 Title II did not authorize DOLto supervise financial service providers to IRAs in parallelwith its power over ERISA plans. Moreover, fiduciariesto IRAs are not, unlike ERISA plan fiduciaries, subjectto statutory duties of loyalty and prudence. Instead,Title II authorized the Treasury Department, throughthe IRS, to impose an excise tax on “prohibited [i.e.conflicted] transactions” involving fiduciaries of bothERISA retirement plans and IRAs. 26 U.S.C. § 4975(a), (b), (f)(8)(E). DOL was authorized only to grantexemptions from the prohibited transactions provision, 29U.S.C. § 1108(a), 26 U.S.C. § 4975(c)(2), and to “defineaccounting, technical and trade terms” that appear in bothlaws, 29 U.S.C. § 1135. Title II did not create a federalright of action for IRA owners, but state law and otherremedies remain available to those investors.

*2 The critical term “fiduciary” is defined alike inboth Title I, 29 U.S.C. § 1002(21)(A), and Title II, 26U.S.C. § 4975(e)(3). In Title I, fiduciaries are subjectto comprehensive DOL regulation, while in Title IIindividual plans, they are subject to the prohibitedtransactions provisions. The provision states that “aperson is a fiduciary with respect to a plan to the extent he

• exercises any discretionary authority or discretionarycontrol respecting management of such planor exercises any authority or control respectingmanagement or disposition of its assets,” 29 U.S.C.§ 1002(21)(A)(i);

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

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

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

In 1975, DOL promulgated a five-part conjunctive testfor determining who is a fiduciary under the investment-advice subsection. Under that test, an investment-advicefiduciary is a person who (1) “renders advice...ormakes recommendation[s] as to the advisability ofinvesting in, purchasing, or selling securities or otherproperty;” (2) “on a regular basis;” (3) “pursuant to amutual agreement...between such person and the plan;”and the advice (4) “serve[s] as a primary basis forinvestment decisions with respect to plan assets;” and (5)is “individualized ... based on the particular needs of theplan.” 29 C.F.R. § 2510.3-21(c)(1) (2015).

The 1975 regulation captured the essence of a fiduciaryrelationship known to the common law as a specialrelationship of trust and confidence between the fiduciaryand his client. See, e.g., GEORGE TAYLOR BOGERT,ET AL., TRUSTS & TRUSTEES § 481 (2016 update).The regulation also echoed the then thirty-five-year olddistinction drawn between an “investment adviser,” whois a fiduciary regulated under the Investment AdvisersAct, and a “broker or dealer” whose advice is “solelyincidental to the conduct of his business as a brokeror dealer and who receives no special compensationtherefor.” 15 U.S.C. § 80b-2(a)(11)(C). Thus, the DOL’soriginal regulation specified that a fiduciary relationshipwould exist only if, inter alia, the adviser’s services werefurnished “regularly” and were the “primary basis” for theclient’s investment decisions. 29 C.F.R. § 2510.3-21(c)(1)(2015).

In the decades following the passage of ERISA, the useof participant-directed IRA plans has mushroomed as avehicle for retirement savings. Additionally, as membersof the baby-boom generation retire, their ERISA planaccounts will roll over into IRAs. Yet individualinvestors, according to DOL, lack the sophistication andunderstanding of the financial marketplace possessed byinvestment professionals who manage ERISA employer-sponsored plans. Further, individuals may be persuadedto engage in transactions not in their best interestsbecause advisers like brokers and dealers and insuranceprofessionals, who sell products to them, have “conflictsof interest.” DOL concluded that the regulation of thoseproviding investment options and services to IRA holders

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is insufficient. One reason for this deficiency is thegoverning statutory architecture:

*3 Although ERISA’s statutoryfiduciary obligations of prudenceand loyalty do not govern thefiduciaries of IRAs and otherplans not covered by ERISA,these fiduciaries are subject toprohibited transaction rules underthe [Internal Revenue] Code. Thestatutory exemptions in the Codeapply and the [DOL] has been giventhe statutory authority to grantadministrative exemptions under theCode. [footnote omitted] In thiscontext, however, the sole statutorysanction for engaging in the illegaltransactions is the assessment of anexcise 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 1975regulation’s definition of an investment advice fiduciary.In particular, by requiring that the advice be given tothe customer on a “regular basis” and that it mustalso be the “primary basis” for investment decisions,the definition excluded one-time transactions like IRArollovers. As DOL saw it, the term “adviser” shouldextend well beyond investment advisers registered underthe Investment Advisers Act of 1940 or under state law.Semantically, the term “investment advice fiduciary” caninclude “an individual or entity who is, among otherthings, a representative of a registered investment adviser,a bank or similar financial institution, an insurancecompany, or a broker-dealer.” 81 Fed. Reg. at 20946 n.1.Further, “[u]nless they are fiduciaries, ... these consultantsand advisers are free under ERISA and the Code, notonly to receive such conflicted compensation, but also toact on their conflicts of interest to the detriment of theircustomers.” 81 Fed. Reg. at 20956.

Beginning in 2010, DOL set out to fill the perceivedgap. The result, announced in April 2016, was anoverhaul of the investment advice fiduciary definition,together with amendments to six existing exemptionsand two new exemptions to the prohibited transaction

provision in both ERISA and the Code (collectively, aspreviously noted, the Fiduciary Rule). The Fiduciary Ruleis of monumental significance to the financial servicesand insurance sectors of the economy. The package ofregulations and accompanying explanations, although fullof repetition, runs 275 pages in the Federal Register.DOL estimates that compliance costs imposed on theregulated parties might amount to $31.5 billion over tenyears 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 forfixed indexed annuities in comparison with competingannuity products. Finally, with unintentional irony,DOL pledged to alleviate the regulated parties’ concernsabout “compliance and interpretive issues” following this“issuance of highly technical or significant guidance” bydrawing attention to its “broad assistance for regulatedparties on the Affordable Care Act regulations ....” 81Fed. Reg. at 20947.

II. THE FIDUCIARY RULE

Now to the relevant highlights of the Fiduciary Rule. 3

In lieu of the 1975 definition of an investment advicefiduciary, the Fiduciary Rule provides that an individual“renders investment advice for a fee” whenever he iscompensated in connection with a “recommendationas 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 advicerecipient ... regarding the advisability of a particularinvestment or management decision with respect to” therecipient’s investment property. 29 C.F.R. § 2510.3-21(a)(2)(iii) (2017).

*4 To be sure, the new rule purports to withdrawfrom fiduciary status communications that are not“recommendations,” i.e., those in which the “content,context, and presentation” would not objectively beviewed as “a suggestion that the advice recipient engage inor refrain from taking a particular course of action.” 29C.F.R. § 2510.3-21(b)(1) (2017). But the more individuallytailored the recommendation is, the more likely it willrender the “adviser” a fiduciary. Id.

Critically, the new definition dispenses with the “regularbasis” and “primary basis” criteria used in the regulation

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for the past forty years. Consequently, it encompassesvirtually all financial and insurance professionals whodo business with ERISA plans and IRA holders.Stockbrokers and insurance salespeople, for instance,are exposed to regulations including the prohibitedtransaction rules. The newcomers are thus barred, withoutan exemption, from being paid whatever transaction-based commissions and brokerage fees have been standardin their industry segments because those types ofcompensation are now deemed a conflict of interest.

The second novel component of the Fiduciary Rule isa “Best Interest Contract Exemption,” (BICE) which, ifadopted by “investment advice fiduciaries,” allows themto 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 werepromulgated pursuant to DOL’s authority to approveprohibited transaction exemptions (PTE’s) for certainclasses of fiduciaries or transactions. 29 U.S.C. § 1108(a),

26 U.S.C. § 4975(c)(2). 4 The BICE was intended to affordsuch relief because, as DOL candidly acknowledged, thenew standard could “sweep in some relationships that arenot appropriately regarded as fiduciary in nature and thatthe Department does not believe Congress intended tocover as fiduciary relationships.” 81 Fed. Reg. at 20948.

The BICE supplants former exemptions with a webof duties and legal vulnerabilities. To qualify for aBIC Exemption, providers of financial and insuranceservices must enter into contracts with clients that, interalia, affirm their fiduciary status; incorporate “ImpartialConduct Standards” that include the duties of loyalty andprudence; “avoid[ ] misleading statements;” and charge nomore than “reasonable compensation.” As noted above,Title II service providers to IRA clients are not statutorilyrequired to abide by duties of loyalty and prudence. Yet,to qualify as not being “investment advice fiduciaries” perthe new definition, the financial service providers mustdeem themselves fiduciaries to their clients. In addition,the contracts may not include exculpatory clauses suchas a liquidated damages provision nor may they requireclass action waivers. DOL contends that the enforceabilityof the BICE-created contract, “and the potential forliability” it offers, were “central goals of this regulatoryproject.” 81 Fed. Reg. at 21021, 21033. In these respects,

a BIC Exemption comes at a high price. 5

*5 The third relevant element of the Fiduciary Rule isthe amended Prohibited Transaction Exemption 84-24.Since 1977, that exemption had covered transactionsinvolving insurance and annuity contracts and permittedcustomary sales commissions where the terms were atleast as favorable as those at arm’s-length, providedfor “reasonable” compensation, and included certaindisclosures. 49 Fed. Reg. 13208, 13211 (Apr. 3, 1984);see 42 Fed. Reg. 32395, (June 24, 1977) (precursor toPTE 84-24). As amended in the Fiduciary Rule package,PTE 84-24 now subjects these transactions to the sameImpartial 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 indexedannuities from the more latitudinarian PTE 84-24, leavingonly fixed-rate annuities within its scope. In practice, thisaction places a disproportionate burden on the market forfixed indexed annuities, as opposed to competing annuityproducts.

The President has directed DOL to reexamine theFiduciary Rule and “prepare an updated economicand legal analysis” of its provisions, 82 Fed. Reg.9675 (Feb. 3, 2017), and the effective date of someprovisions has been extended to July 1, 2019. The case,however, is not moot. The Fiduciary Rule has alreadyspawned significant market consequences, including thewithdrawal of several major companies, including Metlife,AIG and Merrill Lynch from some segments of thebrokerage and retirement investor market. Companieslike Edward Jones and State Farm have limited theinvestment products that can be sold to retirementinvestors. Confusion abounds—how, for instance, doesa company wishing to comply with the BICE exemptiondocument and prove that its salesman fostered the “bestinterests” of the individual retirement investor client?The technological costs and difficulty of compliancecompound the inherent complexity of the new regulations.Throughout the financial services industry, thousands ofbrokers and insurance agents who deal with IRA investorsmust either forgo commission-based transactions andmove to fees for account management or accept theburdensome regulations and heightened lawsuit exposurerequired by the BICE contract provisions. It is likely thatmany financial service providers will exit the market forretirement investors rather than accept the new regulatoryregime.

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Further, as DOL itself recognized, millions of IRAinvestors with small accounts prefer commission-basedfees because they engage in few annual tradingtransactions. Yet these are the investors potentiallydeprived of all investment advice as a result of theFiduciary Rule, because they cannot afford to payaccount management fees, or brokerage and insurancefirms cannot afford to service small accounts, given theregulatory burdens, for management fees alone.

The district court rejected all of the appellants’ challengesto the Fiduciary Rule. Timely appeals were filed.

III. DISCUSSION

Appellants pose a series of legal issues, all of whichare 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 principalquestion is whether the new definition of an investmentadvice fiduciary comports with ERISA Titles I and II.Alternatively, is the new definition “reasonable” underChevron, U.S.A., Inc. v. N.R.D.C., Inc., 467 U.S. 837, 104S.Ct. 2778, 81 L.Ed.2d 694 (1984) and not violative of theAdministrative Procedures Act (APA), 5 U.S.C. § 706(2)(A) (2016)?

Beyond that threshold are the questions whetherthe BICE exemption, including its impact on fixedindexed annuities, asserts affirmative regulatory powerinconsistent with the bifurcated structure of Titles I andII and is invalid under the APA. Further, are the requiredBICE contractual provisions consistent with federal lawin creating implied private rights of action and prohibiting

certain waivers of arbitration rights? 6

A. The Fiduciary Rule Conflicts with the Text of 29U.S.C. Sec. 1002(21)(A)(ii); 26 U.S.C. Sec. 4975(e)(3)(B).

*6 [1] DOL expanded the statutory term “fiduciary” byredefining one out of three provisions explaining the scopeof fiduciary responsibility under ERISA and the InternalRevenue Code. The second of these three provisions statesthat

a person is a fiduciary with respectto a plan to the extent ... he renders

investment advice for a fee or othercompensation, direct or indirect,with respect to any moneys or otherproperty of such plan, or has anyauthority or responsibility to do so[.]

29 U.S.C. § 1002(21)(A)(ii); 26 U.S.C. § 4975(e)(3)(B). Forthe past forty years, DOL has considered the hallmarksof an “investment advice” fiduciary’s business to be its“regular” work on behalf of a client and the client’sreliance on that advice as the “primary basis” for herinvestment decisions. 29 C.F.R. § 2510.3-21(c)(1) (2015).The Fiduciary Rule’s expanded coverage is best explainedby variations of the following hypothetical advanced bythe Chamber of Commerce: a broker-dealer otherwiseunrelated to an IRA owner tells the IRA owner, “You’lllove the return on X stock in your retirement plan, letme tell you about it” (the “investment advice”); the IRAowner purchases X stock; and the broker-dealer is paid acommission (the “fee or other compensation”). Based onthis single sales transaction, as DOL agrees, the broker-dealer has now been brought within the Fiduciary Rule.The same consequence follows for insurance agents whopromote annuity products.

[2] [3] [4] Expanding the scope of DOL regulationin vast and novel ways is valid only if it is authorizedby ERISA Titles I and II. A regulator’s authority isconstrained by the authority that Congress delegatedit by statute. Where the text and structure of astatute unambiguously foreclose an agency’s statutoryinterpretation, the intent of Congress is clear, and “that isthe end of the matter; for the court, as well as the agency,must give effect to the unambiguously expressed intent ofCongress.” Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778.To decide whether the statute is sufficiently capacious toinclude the Fiduciary Rule, we rely on the conventionalstandards of statutory interpretation and authoritativeSupreme Court decisions. City of Arlington v. F.C.C., 569U.S. 290, 133 S.Ct. 1863, 1868, 185 L.Ed.2d 941 (2013)(quoting Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778).The text, structure, and the overall statutory schemeare among the pertinent “traditional tools of statutoryconstruction.” See Chevron, 467 U.S. at 843 n.9, 104 S.Ct.2778.

[5] We conclude that DOL’s interpretation of an“investment advice fiduciary” relies too narrowly on apurely semantic construction of one isolated provisionand wrongly presupposes that the provision is inherently

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ambiguous. Properly construed, the statutory text is notambiguous. Ambiguity, to the contrary, “is a creaturenot of definitional possibilities but of statutory context.”Brown v. Gardner, 513 U.S. 115, 118, 115 S.Ct. 552,130 L.Ed.2d 462 (1994). Moreover, all relevant sourcesindicate that Congress codified the touchstone of commonlaw fiduciary status—the parties’ underlying relationshipof trust and confidence—and nothing in the statute“requires” departing from the touchstone. See NationwideMut. Ins. Co. v. Darden, 503 U.S. 318, 322, 112 S.Ct. 1344,117 L.Ed.2d 581 (1992) (where a term in ERISA has a“settled meaning under ... the common law, a court mustinfer, unless the statute otherwise dictates, that Congressmean[t] to incorporate the established meaning”) (internalquotation omitted) (emphasis added).

1. The Common Law Presumptively Applies

*7 [6] [7] Congress’s use of the word “fiduciary”triggers the “settled principle of interpretation that, absentother indication, ‘Congress intends to incorporate thewell-settled meaning of the common-law terms it uses.’ ”United States v. Castleman, ––– U.S. ––––, 134 S.Ct. 1405,1410, 188 L.Ed.2d 426 (2014) (quoting Sekhar v. UnitedStates, 570 U.S. 729, 133 S.Ct. 2720, 2724, 186 L.Ed.2d794 (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, 130 S.Ct. 1265, 176 L.Ed.2d 1 (2010) ). This generalpresumption is particularly salient in analyses of ERISA,which has its roots in the common law. See, e.g., Tibblev. Edison Int’l, ––– U.S. ––––, 135 S.Ct. 1823, 1828, 191L.Ed.2d 795 (2015) (“In determining the contours of anERISA fiduciary’s duty, courts often must look to the lawof trusts.”); Kennedy v. Plan Adm’r for DuPont Sav. & Inv.Plan, 555 U.S. 285, 294–96, 129 S.Ct. 865, 172 L.Ed.2d662 (2009); Aetna Health Inc. v. Davila, 542 U.S. 200,218–19, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004); Pegramv. Herdrich, 530 U.S. 211, 223–24, 120 S.Ct. 2143, 147L.Ed.2d 164 (2000); Firestone Tire & Rubber Co. v. Bruch,489 U.S. 101, 110, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).

The common law term “fiduciary” falls within the scopeof 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] withthe language and terminology of trust law.” 489 U.S.

at 110, 109 S.Ct. 948 (citing 29 U.S.C. § 1002(21)(A) ).More importantly for present purposes, the Court rejecteddictionary definitions in favor of the common law whenanalyzing the statutory definition of “fiduciary” in VarityCorp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d130 (1996). There, the Court was tasked with determiningthe meaning of the word “administration,” which appearsin another of the tripartite examples of a “fiduciary,” 29U.S.C. § 1002(21)(A)(iii). See Varity Corp., 516 U.S. at502, 116 S.Ct. 1065. The Court noted that “[t]he dissentlook[ed] to the dictionary for interpretive assistance,”but the Court expressly declined to follow that route:“Though dictionaries sometimes help in such matters, webelieve it more important here to look to the commonlaw, which, over the years, has given to terms such as‘fiduciary’ and trust ‘administration’ a legal meaning towhich, we normally presume, Congress meant to refer.”Id. The Court then considered the “ordinary trust lawunderstanding of fiduciary ‘administration’ ” to determinethat an entity “was acting as a fiduciary.” Id. at 502–03,116 S.Ct. 1065.

The common law understanding of fiduciary status isnot only the proper starting point in this analysis, butis as specific as it is venerable. Fiduciary status turns onthe existence of a relationship of trust and confidencebetween the fiduciary and client. “The concept of fiduciaryresponsibility dates back to fiducia of Roman law,” and“[t]he entire concept was founded on concepts of sanctity,trust, confidence, honesty, fidelity, and integrity.” GeorgeM. Turner, Revocable Trusts § 3:2 (Sept. 2016 Update).Indeed, “[t]he development of the term in legal historyunder the Common Law suggested a situation whereina person assumed the character of a trustee, or ananalogous relationship, where there was an underlyingconfidence involved that required scrupulous fidelity andhonesty.” Id. Another treatise addresses relationships“which require trust and confidence,” and explains that“[e]quity has always taken an active interest in fosteringand protecting these intimate relationships which it calls‘fiduciary.’ ” GEORGE G. BOGERT, ET AL., TRUSTS& TRUSTEES § 481 (2017 Update). Yet another treatisedescribes fiduciaries as “individuals or corporations whoappear to accept, expressly or impliedly, an obligation toact in a position of trust or confidence for the benefitof another or who have accepted a status or relationshipunderstood to entail such an obligation, generating thebeneficiary’s justifiable expectations of loyalty.” 3 DANB. DOBBS, ET AL., THE LAW OF TORTS § 697 (2d ed.

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June 2017 Update). Notably, DOL does not dispute thata relationship of trust and confidence is the sine qua nonof fiduciary status.

*8 Congress did not expressly state the common lawunderstanding of “fiduciary,” but it provided a goodindicator of its intention. In § 1002, ERISA’s definitionalsection, 41 of 42 provisions begin by stating, “[t]he term[“X”] means ....” 29 U.S.C. § 1002(1)–(20), (22)–(42). Forexample, § 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 persondesignated by a participant, or by the terms of anemployee benefit plan, who is or may become entitled to abenefit thereunder.” In each case, Congress placed a wordor phrase in quotation marks before defining the word orphrase.

The unique provision in which Congress did not take thatroute delineates the term “fiduciary.” Instead, Congressstated that “a person is a fiduciary with respect to a plan tothe 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 thatthe common law meaning was self-explanatory, andit accordingly addressed fiduciary status for ERISApurposes in terms of enumerated functions. See JohnHancock Mut. Life Ins. v. Harris Tr. & Sav. Bank, 510U.S. 86, 96–97, 114 S.Ct. 517, 126 L.Ed.2d 524 (1993)(the words “to the extent” in ERISA are “words oflimitation”).

In any event, “absent other indication, ‘Congressintend[ed] to incorporate the well-settled meaning’ ” of“fiduciary”—the very essence of which is a relationshipof 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-lawpresumption and the common-law trust-and-confidencestandard but then places all its eggs in one basket:displacement of the presumption. Invoking its favoritephrases from Varity Corp., DOL argues that the commonlaw is only “a starting point” and the presumption“is displaced if inconsistent with ‘the language ofthe statute, its structure, or its purposes.’ ” (quoting

Varity Corp., 516 U.S. at 497, 116 S.Ct. 1065)(emphasis removed). Displacement should occur here,DOL continues, because “DOL reasonably interpretedERISA’s language, structure, and purpose to go beyondthe trust-and-confidence standard.”

As a preliminary matter, DOL neglects to mention twoaspects of Varity Corp. that cut against its position. First,the phrase quoted above is significantly less absolute thanDOL lets on: “In some instances, trust law will offeronly a starting point, after which courts must go onto ask whether, or to what extent, the language of thestatute, its structure, or its purposes require departingfrom common-law trust requirements.” Varity Corp.,516 U.S. at 497, 116 S.Ct. 1065 (emphases added).Thus, it is not the case, as DOL suggests, that anyperceived inconsistency automatically requires jettisoningthe common-law understanding of “fiduciary.” Second,although the Court suggested that in some instancesthe common law will be “only a starting point,” theCourt went on specifically to reject reliance on dictionarydefinitions when interpreting the statutory definition of“fiduciary” and reverted to the common law. See id. at502–03, 116 S.Ct. 1065. Thus, Varity Corp. reinforcesrather than rejects the common law when interpretingERISA.

Even more important, DOL acknowledges appellants’argument “that there is nothing inherently inconsistentbetween the trust-and-confidence standard and ERISA’sdefinition” of “fiduciary.” The DOL’s only response isthat it “is not required to adopt semantically possibleinterpretations merely because they would comport withcommon-law standards.” But this proves appellants’point: adopting “semantically possible” interpretationsthat do not “comport with common law standards” iscontrary to Varity Corp. because the statute does not“require departing from [the] common-law” trust-and-confidence standard. Id. at 497, 116 S.Ct. 1065. DOL’sconcession should end any debate about the viability andvitality of the common law presumption.

3. Statutory Text—“investment advice fiduciary”

*9 Even if the common law presumption didnot apply, the Fiduciary Rule contradicts the textof the “investment advice fiduciary” provision andcontemporary understandings of its language. To restate,

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a person is a fiduciary with respect to a plan to theextent “he renders investment advice for a fee or othercompensation, direct or indirect, with respect to anymoneys or other property of such plan, or has anyauthority or responsibility to do so[.]” 29 U.S.C. §1002(21)(A)(ii); 26 U.S.C. § 4975(e)(3)(B). Focusing on thewords “investment” and “advice,” DOL cites dictionarydefinitions to explain the breadth of the terms, thereasonableness of the Fiduciary Rule’s construction ofthose terms, and the permissibility of its departure fromthe common law trust and confidence standard.

[8] Going straight to dictionary definitions not onlyconflicts with Varity Corp., but it also fails to take intoaccount whether the words that Congress used were termsof art within the financial services industry. See, e.g.,Corning Glass Works v. Brennan, 417 U.S. 188, 201–02, 94 S.Ct. 2223, 41 L.Ed.2d 1 (1974) (rejecting anordinary understanding of “working conditions” because“the term has a different and much more specific meaningin the language of industrial relations”). Moreover, thetechnique of defining individual words in a vacuum fails toview the entire provision in context. “[S]tatutory languagecannot be construed in a vacuum. It is a fundamentalcanon of statutory construction that the words of a statutemust be read in their context and with a view to their placein the overall statutory scheme.” Davis v. Mich. Dep’t ofTreasury, 489 U.S. 803, 809, 109 S.Ct. 1500, 103 L.Ed.2d891 (1989).

Properly considered, the statutory text equating the“rendering” of “investment advice for a fee” with fiduciarystatus comports with common law and the structure ofthe financial services industry. When enacting ERISA,Congress was well aware of the distinction, explainedfurther below, between investment advisers, who wereconsidered fiduciaries, and stockbrokers and insuranceagents, who generally assumed no such status in sellingproducts to their clients. The Fiduciary Rule improperlydispenses with this distinction. Had Congress intendedto include as a fiduciary any financial services providerto investment plans, it could have written ERISA tocover any person who renders “any investment advicefor a fee....” The word “any” would have embodiedDOL’s expansive interpretation, and it is a word usedfive times in ERISA’s tripartite fiduciary definition,e.g. “any authority or responsibility.” See generally 29U.S.C. § 1002(21)(A). That Congress did not say “anyinvestment advice” signals the intentional omission of

this adjective. See Russello v. United States, 464 U.S.16, 23, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983) (“[W]hereCongress includes particular language in one section ofa statute but omits it in another..., it is presumed thatCongress acts intentionally and purposely. ...”). Further,DOL’s interpretation conjoins “advice” with a “fee orother compensation, direct or indirect,” but it ignoresthe preposition “for,” which indicates that the purposeof the fee is not “sales” but “advice.” Therefore, takenat face value, the provision rejects “any advice” in favorof the activity of “render[ing] investment advice for afee.” Stockbrokers and insurance agents are compensatedonly for completed sales (“directly or indirectly”), not onthe basis of their pitch to the client. Investment advisers,on the other hand, are paid fees because they “renderadvice.” The statutory language preserves this importantdistinction.

Put otherwise, DOL’s defense of the Fiduciary Rulecontemplates a hypothetical law that states, “a person is afiduciary with respect to a plan to the extent...he receives afee, in whole or in part, in connection with any investmentadvice....” This language could have embraced individualsales transactions as well as the stand-alone furnishingof investment advice. But this iteration does not squarewith the last clause of the actual law, which includesa person who “has any authority or responsibility to[render investment advice].” Only in DOL’s semanticallycreated world do salespeople and insurance brokers have“authority” or “responsibility” to “render investmentadvice.” The DOL interpretation, in sum, attempts torewrite the law that is the sole source of its authority. Thisit cannot do.

*10 [9] Further, in law and the financial servicesindustry, rendering “investment advice for a fee”customarily distinguished salespeople from investmentadvisers during the period leading up to ERISA’s 1974passage. Congress is presumed to have acted against abackground of shared understanding of the terms it usesin statutes. Morissette v. United States, 342 U.S. 246,263, 72 S.Ct. 240, 96 L.Ed. 288 (1952); see also Miles v.Apex Marine Corp., 498 U.S. 19, 32, 111 S.Ct. 317, 112L.Ed.2d 275 (1990) (“We assume that Congress is aware ofexisting law when it passes legislation.”). And the phrase“investment advice for a fee” and similar phrases generallyreferenced a fiduciary relationship of trust and confidencebetween the adviser and client.

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To begin with, DOL itself reflected this understanding inits 1975 definition of an “investment advice fiduciary.”There, DOL there explained that a “fee or othercompensation” for the rendering of investment adviceunder ERISA “should be deemed to include all fees orother compensation incident to the transaction in whichthe investment advice to the plan has been rendered orwill be rendered.” Definition of the Term “Fiduciary,” 40Fed. Reg. 50842, 50842-43 (Oct. 31, 1975). DOL went onto say that this “may include” brokerage commissions,but only if the broker-dealer who earned the commissionotherwise satisfied the regulation’s requirements thatthe broker-dealer provide individualized advice on aregular basis pursuant to a mutual agreement with hisclient. See id. Later, DOL reiterated that “the receipt ofcommissions by a broker-dealer which performs servicesin addition to that of effecting or executing securitiestransactions for a plan is not necessarily dispositive ofwhether the broker-dealer received a portion of suchcompensation for the rendering of ‘investment advice.’” DOL Advisory Opinion 83-60A (Nov. 21, 1983), inERISA for Money Managers and Advisers § 2:51 (Sept.2016 Update). Instead, “if, under the particular facts andcircumstances, the services provided by the broker-dealerinclude the provision of ‘investment advice’ ” as definedby the regulation—i.e. on a regular basis pursuant to amutual agreement to provide individualized advice—onlythen “may [it] be reasonably expected that, even in theabsence of a distinct and identifiable fee for such advice,a portion of the commissions paid to the broker-dealerwould represent compensation for the provision of suchinvestment advice.” Id.

DOL’s 1975 regulation flowed directly fromcontemporary understanding of “investment advice fora fee,” which contemplated an intimate relationshipbetween adviser and client beyond ordinary buyer-sellerinteractions. The Fiduciary Rule is at odds with thatunderstanding.

Substantial case law has followed and adopted DOL’soriginal dichotomy between mere sales conduct, whichdoes not usually create a fiduciary relationship underERISA, and investment advice for a fee, which does.In the Fifth Circuit, this court held that “[s]implyurging the purchase of its products does not make aninsurance company an ERISA fiduciary with respectto those products.” Am. Fed’n of Unions v. EquitableLife Assurance Soc’y, 841 F.2d 658, 664 (5th Cir. 1988).

Applying the DOL’s 1975 regulation of an “investmentadvice fiduciary,” the Seventh Circuit refused to hold abrokerage firm liable for the failure of investments it soldto an ERISA plan, but the court emphasized that therewas

nothing in the record to indicate thatJones or its employees had agreedto render individualized investmentadvice to the Plan. ... The only‘agreement’ between the parties wasthat the trustees would listen toJones’ sales pitch and if the trusteesliked the pitch, the Plan wouldpurchase from among the suggestedinvestments, the very cornerstone ofa typical broker-client relationship.

*11 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 oflife policies to an ERISA plan, without more, sufficed togive 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 functionof furnishing [investment advice for compensation]—learning the personal and intimate details of the financialaffairs of clients and making recommendations as topurchases and sales of securities—cultivates a confidentialand intimate relationship”—rendering a broker-dealerwho does so “a fiduciary.” Hughes, Exchange Act ReleaseNo. 4048, 1948 WL 29537, at *4, *7 (Feb. 18, 1948),aff’d sub nom., Hughes v. S.E.C., 174 F.2d 969 (D.C.Cir. 1949); see also Mason, Moran & Co., ExchangeAct Release No. 4832, 1953 WL 44092, at *4 (Apr. 23,1953). The SEC cautioned that fiduciary status does notfollow “merely from the fact that [the broker-dealer]renders investment advice.” Hughes, 1948 WL 29537, at*7. Indeed, broker-dealers “who render investment advicemerely as an incident to their broker-dealer activities” arenot fiduciaries “unless they have by a course of conductplaced themselves in a position of trust and confidenceas 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 theterm “investment adviser” to exclude broker-dealers

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when their investment advice was “solely incidental” totraditional broker-dealer activities and for which theyreceived no “special compensation.” The InvestmentAdvisers Act of 1940, for example, defines “investmentadviser” as “any person who, for compensation, engagesin the business of advising others ... as to the valueof 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 whoseperformance of such services is solely incidental to theconduct of his business as a broker or dealer and who

receives no special compensation therefor.” Id. 9 Laterinterpreting the Act, the Supreme Court highlightedlegislative history in which “leading investment advisersemphasized their relationship of ‘trust and confidence’with their clients,” and the Court stated that the Actreflected Congress’s recognition of “the delicate fiduciarynature of an investment advisory relationship.” S.E.C. v.Capital Gains Research Bureau, Inc., 375 U.S. 180, 190–91, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963) (quotation marksand citation omitted). Numerous contemporary statestatutes also excluded broker-dealers from investment-adviser fiduciary status either completely or to the extentthat the advice was incidental to their traditional activitiesand they did not receive special compensation for the

advice. 10

*12 The contemporary case law similarly demonstratesthat when investment advice was procured “on a feebasis,” it entailed a substantial, ongoing relationshipbetween adviser and client. See, e.g., S.E.C. v. Ins.Sec., Inc., 254 F.2d 642, 645 (9th Cir. 1958) (companyreceives a “management and investment supervisory feefor 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 feecalculated on the net value of the fund’s assets.”); Normanv. McKee, 290 F.Supp. 29, 34 (N.D. Cal. 1968) (“Forits services, including administration, management andinvestment advice, ISI charges a so-called ‘ManagementFee’ of 1 1/2% Per year of the face amount ofeach outstanding investment certificate.”); Acampora v.Birkland, 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); Glickenv. 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”); S.E.C. v. Fiscal Fund, 48F.Supp. 712, 713 & n.7 (D. Del. 1943) (“for a stated fee”of “approximately $3,000 per annum,” company agreedto “furnish all services, including management, investmentadvice and clerical assistance”).

In short, whether one looks at DOL’s original regulation,the SEC, federal and state legislation governinginvestment adviser fiduciary status vis-à-vis broker-dealers, or case law tying investment advice for a feeto ongoing relationships between adviser and client, theanswer is the same: “investment advice for a fee” waswidely interpreted hand in hand with the relationship oftrust and confidence that characterizes fiduciary status.

DOL’s invocation of two dictionary definitions of“investment” and “advice” pales in comparison tothis historical evidence. That DOL contradicts itsown longstanding, contemporary interpretation of an“investment advice fiduciary” and cannot point to a singlecontemporary source that interprets the term to includestockbrokers and insurance agents indicates that the Ruleis far afield from its enabling legislation. DOL admitsas much in conceding that the new Rule would “sweepin some relationships” that “the Department does notbelieve 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, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001). Had Congressintended to abrogate both the cornerstone of fiduciarystatus—the relationship of trust and confidence—and thewidely shared understanding that financial salespeople arenot fiduciaries absent that special relationship, one wouldreasonably expect Congress to say so. This is particularlytrue where such abrogation portends consequences that“are undeniably significant.” Accordingly, the FiduciaryRule’s interpretation of “investment advice fiduciary”fatally conflicts with the statutory text and contemporaryunderstandings.

4. Consistency with other prongsof ERISA’s “fiduciary” definition

In addition to the preceding flaws, the Fiduciary Rulerenders the second prong of ERISA’s fiduciary statusdefinition in tension with its companion subsections. TheRule thus poses a serious harmonious-reading problem.

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See ANTONIN SCALIA & BRYAN A. GARNER,READING LAW: THE INTERPRETATION OFLEGAL TEXTS 180 (2012) (“The provisions of atext should be interpreted in a way that renders themcompatible, not contradictory.”). The investment-adviceprong of the statutory application of “fiduciary” isbookended by one subsection that defines individualsas fiduciaries with respect to a plan to the extent theyexercise “any discretionary authority or ... control” overthe management of a retirement plan or “any authorityor control” over its assets. 29 U.S.C. § 1001(21)(A)(i);26 U.S.C. § 4975(e)(3)(A). The following prong identifiesas fiduciaries those individuals to the extent they possess“any discretionary authority or ... responsibility” in aplan’s administration. 29 U.S.C. § 1001(21)(A)(iii); 26U.S.C. § 4975(e)(3)(C). In Mertens, the Supreme Courtwas emphatic that these prongs defined “fiduciary” in“functional terms of control and authority.” See Mertensv. Hewitt Assocs., 508 U.S. 248, 262, 113 S.Ct. 2063, 124L.Ed.2d 161 (1993). The phrase “control and authority”necessarily implies a special relationship beyond that of anordinary buyer and seller.

*13 Sandwiched between the two “control andauthority” prongs, the interpretation of an “investmentadvice fiduciary” should gauge that subdivision by thecompany it keeps and should uniformly apply the trustand confidence standard in all three provisions. Robertsv. Sea-Land Servs., Inc., 566 U.S. 93, 101, 132 S.Ct.1350, 182 L.Ed.2d 341 (2012) (“the words of a statutemust be read in their context” (quotation omitted) ).The inference of textual consistency is reinforced by thesimilar phrasing in the last clause of the investment advicefiduciary prong, which refers to a person “with anyauthority or responsibility” to render investment advicefor a fee. Salespeople in ordinary buyer-seller transactions

have no such authority or responsibility. 11

Countertextually, the Fiduciary Rule’s interpretation ofan “investment advice fiduciary” lacks any requirement ofa special relationship. DOL thus asks us to differentiatewithin the definition of “fiduciary”—rendering thedefinition a moving target depending on which of thethree prongs is at issue. Standard textual interpretationdisavows that disharmony.

There is also no merit in DOL’s reliance on Mertens forthe broader proposition that ERISA departed from thecommon law definition of “fiduciary.” DOL emphasizes

the Court’s statement that, by defining fiduciary in“functional” terms, Congress “expand[ed] the universe ofpersons subject to fiduciary duties.” Mertens, 508 U.S. at262, 113 S.Ct. 2063.

DOL’s quotation is correct but beside the point. Thequestion in Mertens was whether individuals who werenot subject to fiduciary duties at common law could besued under ERISA. See id. at 261–62, 113 S.Ct. 2063. Thisquestion arose because under the common law, not onlythe named trustee, but also individuals who “knowinglyparticipated” in a named trustee’s breach of his fiduciaryduties, could be held liable. Id. at 256, 113 S.Ct. 2063. TheCourt held that this was no longer the case under ERISA.Although Congress “expand[ed] the universe of personssubject to fiduciary duties” by defining “fiduciary” “notin terms of formal trusteeship, but in functional terms ofcontrol and authority over the plan,” Congress actuallylimited the number of persons that could be sued. Id. at262, 113 S.Ct. 2063. ERISA differed from common lawby excluding “persons who [despite participation in thetrustee’s breach] had no real power to control what theplan did.” Id.

Under Mertens, ERISA eliminated the “formaltrusteeship” requirement and applied fiduciary status toall individuals who have “control and authority over theplan.” Id. The reason for this is clear: “Professional serviceproviders such as actuaries become liable for damageswhen they cross the line from adviser to fiduciary.” Id.(emphasis added). Thus, the Court understood ERISAto apply to those who act as fiduciaries, regardlesswhether they are named fiduciaries. That understandingis consistent, not inconsistent, with the common law trustand confidence standard.

Moreover, although ERISA “abrogate[d] the commonlaw in certain respects” concerning “formal trusteeship,”“we presume that Congress retained all other elements ofcommon-law [fiduciary status] that are consistent with thestatutory text because there are no textual indicia to thecontrary.” Universal Health Servs., Inc. v. United States,––– U.S. ––––, 136 S.Ct. 1989, 1999 n.2, 195 L.Ed.2d 348

(2016). 12 There is no inconsistency between the statutorystructure and the common law trust and confidencestandard that “require[s] departing from common-lawtrust requirements.” Varity Corp., 516 U.S. at 497, 116S.Ct. 1065.

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5. Purposes

*14 DOL ultimately falls back on statutory purposes.DOL points to the alleged negative repercussions ofappellants’ position, namely that “many investmentadvisers 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 thatappellants “cannot show that DOL acted unreasonablyin determining that their proposed trust-and-confidencerequirement 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 (5thCir. 2006), DOL concludes that “[s]uch inconsistencywith statutory purposes is alone sufficient to displace thecommon law, as Varity reflects and this Court has held inother contexts.”

None of these arguments holds water. DOL’s invocationof ERISA’s purposes is unpersuasive in light of Mertens.There, the petitioners asked for a particular interpretationof ERISA “in order to achieve the ‘purpose of ERISAto protect plan participants and beneficiaries.’ ” 508 U.S.at 261, 113 S.Ct. 2063. The petitioners complained thata different interpretation would “leave[ ] beneficiarieslike petitioners with less protection than existed beforeERISA, contradicting ERISA’s basic goal of ‘promot[ing]the interests of employees and their beneficiaries inemployee benefit plans.’ ” Id. (quoting Shaw, 463 U.S.at 90, 103 S.Ct. 2890). Mertens rejected these complaintsbecause “vague notions of a statute’s ‘basic purpose’are nonetheless inadequate to overcome the words ofits text regarding the specific issue under consideration.”Id. Indeed, the Court said that “[t]his is especially truewith legislation such as ERISA, an enormously complexand detailed statute that resolved innumerable disputesbetween powerful competing interests—not all in favorof potential plaintiffs.” Id. at 262, 113 S.Ct. 2063; seealso Darden, 503 U.S. at 324-25, 112 S.Ct. 1344 (rejectingbroader definition of employee based solely on the “goals”of ERISA). DOL’s complaints here about “underminingERISA’s goals” are no less vague than the notions rejectedin Mertens and Darden.

Moreover, DOL’s principal policy concern about the lackof fiduciary safeguards in Title II was present when thestatute was enacted, but Congress chose not to require

advisers to individual retirement plans to bear the dutiesof loyalty and prudence required of Title I ERISAplan fiduciaries. That times have changed, the financialmarket has become more complex, and IRA accountshave assumed enormous importance are arguments forCongress to make adjustments in the law, or for otherappropriate federal or state regulators to act within theirauthority. A perceived “need” does not empower DOL tocraft de facto statutory amendments or to act beyond itsexpressly defined authority.

Finally, DOL’s reliance on Guidry is misleadingand misplaced. Guidry was a criminal kidnapping-enhancement case in which this court was required todefine the term “kidnap.” 456 F.3d at 509–11. This courtnoted that “[w]e do not use the common law definition ofany term where it would be inconsistent with the statute’spurpose, notably where the term’s definition has evolved.”Id. at 509. This court applied the modern definitionbecause the term “kidnap” had evolved so far from theantiquated common law that the common-law definition“would come close to nullifying the term’s effect in thestatute.” Id. at 510-11 (quoting Taylor v. United States,495 U.S. 575, 594, 110 S.Ct. 2143, 109 L.Ed.2d 607 (1990)). Unlike the term “kidnap,” the term “fiduciary” has not“evolved” over time.

In sum, using the “regular interpretive method leavesno serious question, not even about purely textualambiguity” in ERISA. Gen. Dynamics Land Sys., Inc. v.Cline, 540 U.S. 581, 600, 124 S.Ct. 1236, 157 L.Ed.2d1094 (2004). DOL cannot displace the presumption ofcommon-law meaning because there is no inconsistencybetween the common-law trust-and-confidence standardand the statutory definition of “fiduciary.” The FiduciaryRule conflicts with the plain text of the “investmentadvice fiduciary” provision as interpreted in light ofcontemporary understandings, and it is inconsistent withthe entirety of ERISA’s “fiduciary” definition. DOLtherefore lacked statutory authority to promulgate theRule with its overreaching definition of “investment

advice fiduciary.” 13

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

*15 [10] [11] Under Step 2 of Chevron, “if the statuteis silent or ambiguous with respect to the specific issue,

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the question for the court is whether the agency’s answeris based on a permissible construction of the statute.”Chevron, 467 U.S. at 843, 104 S.Ct. 2778. Notwithstandingthe preceding discussion, we assume arguendo that thereis some ambiguity in the phrase “investment advicefor a fee.” In that case, the Chevron doctrine requiresthat DOL’s regulatory interpretation be upheld if it is

“reasonable.” Id. at 845, 104 S.Ct. 2778. 14 In addition,the regulation must withstand APA review, ensuring it isnot arbitrary, capricious, contrary to law or in excess ofstatutory authority. 5 U.S.C. § 706(2)(A). Although DOLis empowered to enact regulations enforcing the fiduciaryprovisions of ERISA Title I, including the definition of“fiduciary” in Titles I and II, the Rule fails to pass the testsof reasonableness or the APA.

Bear in mind that DOL’s 1975 regulations only covered“investment advice fiduciaries” who rendered adviceregularly and as the primary basis for clients’ investmentdecisions. The Fiduciary Rule extends regulation to anyfinancial transaction involving an ERISA or IRA planin which “advice” plays a part, and a fee, “direct orindirect,” is received. The Rule expressly includes one-time IRA rollover or annuity transactions where it isordinarily inconceivable that financial salespeople orinsurance agents will have an intimate relationship of trustand confidence with prospective purchasers. Through theBIC Exemption, the Rule undertakes to regulate these andmyriad other transactions as if there were little differencebetween them and the activities of ERISA employer-sponsored plan fiduciaries. Finally, in failing to grantcertain annuities the long-established protection of PTE84-24, the Rule competitively disadvantages their marketbecause DOL believes these annuities are unsuitable forIRA investors.

Not only does the Rule disregard the essential commonlaw trust and confidence standard, but it does notholistically account for the language of the “investmentadvice fiduciary” provision or for the additional prongsof ERISA’s fiduciary definition. The Supreme Court haswarned that “there may be a question about whether [anagency’s] departure from the common law...with respectto particular questions and in a particular statutorycontext[ ] renders its interpretation unreasonable.”N.L.R.B. v. Town & Country Elec., Inc., 516 U.S. 85, 94,116 S.Ct. 450, 133 L.Ed.2d 371 (1995). Given that the texthere does not compel departing from the common law (butactually embraces it), and given that the Fiduciary Rule

suffers from its own conflicts with the statutory text, theRule is unreasonable.

*16 Moreover, that it took DOL forty years to“discover” its novel interpretation further highlights theRule’s unreasonableness. See Util. Air Regulatory Grp.v. EPA, ––– U.S. ––––, 134 S.Ct. 2427, 2444, 189L.Ed.2d 372 (2014) (hereinafter, “UARG”) (“When anagency claims to discover in a long-extant statute anunheralded power to regulate a significant portion of theAmerican economy, we typically greet its announcementwith a measure of skepticism.”) (citation and quotationmarks omitted). DOL’s turnaround from its previousregulation that upheld the common law understanding offiduciary relationships alone gives us reason to withholdapproval or at least deference for the Rule. See Gen.Elec. Co. v. Gilbert, 429 U.S. 125, 142, 97 S.Ct. 401,50 L.Ed.2d 343 (1976) (overturning an agency guidelinethat was “not a contemporaneous interpretation of TitleVII,” and “flatly contradicts the position which theagency had enunciated at an earlier date, closer to theenactment of the governing statute”); see also Watt v.Alaska, 451 U.S. 259, 272-73, 101 S.Ct. 1673, 68 L.Ed.2d80 (1981) (“[P]ersuasive weight” is due to an agency’scontemporaneous construction of applicable law andsubsequent consistent interpretation, whereas a “currentinterpretation, being in conflict with its initial position, isentitled to considerably less deference.”).

The following problems highlight the unreasonableness ofthe Rule and its incompatibility with APA standards.

[12] First, the Rule ignores that ERISA Titles I andII distinguish between DOL’s authority over ERISAemployer-sponsored plans and individual IRA accounts.By statute, ERISA plan fiduciaries must adhere to thetraditional common law duties of loyalty and prudencein fulfilling their functions, and it is up to DOL tocraft regulations enforcing that provision. 29 U.S.C. §§1001(b), 1104. IRA plan “fiduciaries,” though definedstatutorily in the same way as ERISA plan fiduciaries,are not saddled with these duties, and DOL is given nodirect statutory authority to regulate them. As to IRAplans, DOL is limited to defining technical and accountingterms, 11 U.S.C. § 1135, and it may grant exemptionsfrom the prohibited transactions provisions. 26 U.S.C.§ 4975(c)(2), 29 U.S.C. § 1108(a). Hornbook canonsof statutory construction require that every word in astatute be interpreted to have meaning, and Congress’s

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use and withholding of terms within a statute is takento be intentional. It follows that these ERISA provisionsmust have different ranges; they cannot mean that DOLmay comparably regulate fiduciaries to ERISA plansand IRAs. Loughrin v. United States, ––– U.S. ––––,134 S.Ct. 2384, 2390, 189 L.Ed.2d 411 (2014). Despitethe differences between ERISA Title I and II, DOLis treating IRA financial services providers in tandemwith ERISA employer-sponsored plan fiduciaries. TheFiduciary Rule impermissibly conflates the basic divisiondrawn by ERISA.

DOL’s response to the statutory distinction is that ithas 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 anexemption is administratively feasible; in the interestsof the plan, its participants and beneficiaries; andprotective of participants’ and beneficiaries’ rights. Id.DOL adopted the BICE provisions after redefining“investment advice fiduciary” for two essential reasons.To begin with, DOL knew, and continues to concede,its new definition encompassed actors and transactionsthat the Department “does not believe Congress intendedto cover as fiduciary.” DOL had to create exemptionsnot exclusively for the statutory purposes, but to bluntthe overinclusiveness of the new definition. Were itnot for DOL’s ahistorical and strained interpretation of“fiduciary,” there would be no rationale for the BICEexemptions. Thus, when DOL argues that any exemptionswould be more lenient on IRA financial services providersthan deeming their ordinary activities to fall within theERISA Title II prohibited transactions provision, DOLproves too much.

Additionally, the “exemptions” actually subject most ofthese newly regulated actors and transactions to a raftof affirmative obligations. Among the new requirements,brokers and insurance salespeople assume obligations ofloyalty and prudence only statutorily required of ERISAplan fiduciaries. Further, when brokers and insurancerepresentatives use the BICE exemptions (as they must inorder to preserve their commissions), they are requiredto expose themselves to potential liability beyond the taxpenalties provided for in ERISA Title II. See 26 U.S.C. §4975(a). ERISA employer-sponsored plan fiduciaries maybe sued under Title I, 29 U.S.C. § 1132(a), but federallaw did not expose brokers and insurance salespeople toprivate claims of IRA investors until the Fiduciary Rule

was promulgated. On this basic level, DOL unreasonablyfailed to follow its statutory guidance and the cleardistinction in the scope of its authority under ERISATitles I and II.

*17 Second, insofar as the Fiduciary Rule defines“investment advice fiduciary” to include anyone whomakes a suggestion “to a specific advice recipient ...regarding the advisability of a particular investment ...decision,” it comprises nearly any broker or insurancesalesperson who deals with IRA clients. Under ERISA,however, fiduciaries are generally prohibited from sellingfinancial products to plans. 26 U.S.C. § 4975(c)(1), 29U.S.C. § 1106(b). As the Chamber of Commerce puts it,the Rule “treats the fact that a person has done somethingthat a fiduciary generally may not [do], as dispositiveevidence that the person is a fiduciary.” Transformingsales pitches into the recommendations of a trusted

adviser mixes apples and oranges. 15 But the Rule isnot even consistently transformative: it acknowledgesthe distinction between sales and fiduciary advice bywhat it frankly called a “seller’s carve-out” for certaintransactions involving ERISA Title I plans with morethan $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 obligationson sales pitches that are part of arm’s length transactionswhere neither side assumes that the counterparty to theplan is acting as an impartial or trusted adviser.” 81Fed. Reg. at 20980. Only DOL’s fiat supports treatingsmaller-scale sales pitches, those not carved out, as if thecounterparty is acting as an impartial or trusted adviser.Illogic and internal inconsistency are characteristic ofarbitrary and unreasonable agency action.

Another such marker is the overbreadth of theBIC Exemption when compared with an exceptionthat Congress enacted to the prohibited transactionsprovisions. 26 U.S.C. § 4975(d)(17) exempts from“prohibition” transactions involving certain “eligibleinvestment advice arrangements” for individually directedaccounts. 26 U.S.C. § 4975(e)(3)(B); 26 U.S.C. § 4975(f)(8)(A), (B). Moreover, in describing the transactions notprohibited by Section 4975(d)(17), Congress distinguishedtwo 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 indirectreceipt of fees” “in connection with the ... advice” fromfees “in connection with the ... sale of a security ....” 20

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U.S.C. § 4975(d)(17)(A)(iii). That Congress distinguishedsales from the provision of investment advice is consistentwith 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 conflatingsales pitches and investment advice.

Even more remarkable, DOL had to exclude Congress’snuanced § 4975(d)(17) exemption from the BICEexemption’s onerous provisions. 81 Fed. Reg. 20982n.33. But for this exclusion, the BIC Exemption wouldhave brazenly overruled Congress’s careful striking ofa balance in the regulation of “prohibited transactions”concerning certain self-directed IRA plans. DOL candidlysummarizes the intersection of its far broader Rule withCongress’s exclusion contained in the Pension ProtectionAct of 2006 (PPA):

[T]he PPA created a newstatutory exemption that allowsfiduciaries giving investmentadvice to individuals...to receivecompensation from investmentvehicles that they recommend incertain circumstances. 29 U.S.C.1108(b)(14); 29 U.S.C. 4975(d)(17).Recognizing the risks presentedwhen advisers receive fees fromthe investments they recommendto individuals, Congress placedimportant constraints on suchadvice arrangements that arecalculated to limit the potentialfor abuse and self-dealing....Thus,the PPA statutory exemptionremains available to parties thatwould become investment advicefiduciaries [under the FiduciaryRule] because of the broaderdefinition in this final rule....

*18 Id. (emphasis added).

Unlike the BIC Exemption regulations, Congress’sexemption did not require detailed contractual provisionsor subject “fiduciaries” involved in Section 4975(d)(17)transactions to the possibility of class actions suits withoutdamage limitations. When Congress has acted with ascalpel, it is not for the agency to wield a cudgel. See Fin.Planning Ass’n. v. S.E.C., 482 F.3d 481 (D.C. Cir. 2007)

(overturning SEC’s broad regulatory exemption contraryto Congress’s narrower exemption).

Third, the Rule’s status is not salvaged by the BICE, whichas noted was designed to narrow the Rule’s overbreadth.The Supreme Court addressed such a tactic when itheld that agencies “are not free to adopt unreasonableinterpretations of statutory provisions and then edit otherstatutory provisions to mitigate the unreasonableness.”See U.A.R.G., 134 S.Ct. at 2446 (internal quotationsand alterations omitted). This is the vice in BICE,which exploits DOL’s narrow exemptive power in orderto “cure” the Rule’s overbroad interpretation of the“investment advice fiduciary” provision. DOL admittedthat without the BIC Exemptions, the Rule’s overbreadthcould have “serious adverse unintended consequences.”81 Fed. Reg. at 21062. That a cure was needed “shouldhave alerted [the agency] that it had taken a wronginterpretive turn.” U.A.R.G., 134 S.Ct. at 2446. The BICExemption is integral to retaining the Rule. Because it isindependently indefensible, this alone dooms the entireRule.

Fourth, BICE extends far beyond creating “conditional”“exemptions” to ERISA’s prohibited transactionsprovisions. Rather than ameliorate overbreadth, itdeliberately extends ERISA Title I statutory dutiesof prudence and loyalty to brokers and insurancerepresentatives who sell to IRA plans, although Title IIhas no such requirements. The BIC Exemption createsthese duties and burdensome warranty and disclosurerequirements by writing provisions for the regulatedparties’ contracts with IRA owners. The contractualmandates fulfilled a “critical” and “central goal” ofBICE, ensuring IRA owners’ ability to enforce them withlawsuits, 81 Fed. Reg. 21020, 21021, 21033. Incentives toprivate lawsuits include the BICE’s additional provisionsthat reject damage limitations and class action waivers.In stark contrast to these entangling regulations, ERISATitle II only punishes violations of the “prohibitedtransactions” provision by means of IRS audits and excisetaxes. And unlike § 1132 of ERISA Title I, Title II containsno private lawsuit provision. Together, the FiduciaryRule and the BIC Exemption circumvent Congress’swithholding from DOL of regulatory authority overIRA plans. The grafting of novel and extensive dutiesand liabilities on parties otherwise subject only to theprohibited transactions penalties is unreasonable andarbitrary and capricious.

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[13] Fifth, the BICE provisions regarding lawsuits alsoviolate the separation of powers, as reflected in Alexanderv. Sandoval and its progeny. Armstrong v. ExceptionalChild Ctr., Inc., ––– U.S. ––––, 135 S.Ct. 1378, 1387-88,191 L.Ed.2d 471 (2015) (“a private right of action underfederal law is not created by mere implication, butmust be ‘unambiguously conferred’ ”) (quoting GonzagaUniv. v. Doe, 536 U.S. 273, 283, 122 S.Ct. 2268, 153L.Ed.2d 309 (2002) ); Alexander v. Sandoval, 532 U.S.275, 286, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001) (“privaterights of action to enforce federal law must be createdby Congress”). Only Congress may create privatelyenforceable rights, and agencies are empowered onlyto enforce the rights Congress creates. See Alexander,532 U.S. at 291, 121 S.Ct. 1511. In ERISA, Congressauthorized private rights of action for participants andbeneficiaries of employer sponsored plans, 29 U.S.C. §1132(a), but it did not so privilege IRA owners underTitle II. DOL may not create vehicles for private lawsuitsindirectly through BICE contract provisions where itcould not do so directly. Astra USA, Inc. v. Santa ClaraCty., 563 U.S. 110, 117-19, 131 S.Ct. 1342, 179 L.Ed.2d457 (2011). Yet DOL did not apply the BIC Exemptionenforceability provisions to ERISA employer-sponsoredplan fiduciaries precisely because ERISA already subjectsthose entities to suits by private plaintiffs. 81 Fed. Reg.21022. This action admits DOL’s purpose to go beyondCongressionally prescribed limits in creating private rightsof action.

*19 Further, whether federal or state law may be thevehicle for DOL’s BICE-enabled lawsuits is immaterialin the absence of statutory authorization. If the IRAowners’ lawsuits are intended to be cognizable underfederal law, the absence of statutory basis is obvious. Ifthe BICE-mandated provisions are intended to authorizenew claims under the fifty states’ different laws, theyare no more than an end run around Congress’s refusalto authorize private rights of action enforcing Title IIfiduciary duties. Paraphrasing the Supreme Court, “[t]heabsence of a private right to enforce [Title II fiduciaryduties] would be rendered meaningless if [IRA owners]could overcome that obstacle by suing to enforce [DOL-imposed contractual] obligations instead. The statutoryand contractual obligations, in short, are one and thesame.” Astra USA, Inc., 563 U.S. at 117, 131 S.Ct. 1342;see also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d59, 67 (3d Cir. 2008)(reading FICA’s provisions into

every employment contract would contradict Congress’sdecision not to expressly include a private right of action).DOL’s assumption of non-existent authority to createprivate rights of action was unreasonable and arbitraryand capricious.

Although it is now disavowed by DOL, anotherunsustainable feature of the BIC Exemption is theforced rejection, in transactions involving transaction-based compensation, of contractual provisions that wouldhave allowed arbitration of class action claims. Thiscontractual condition violates the Federal ArbitrationAct. The Supreme Court has broadly applied the FederalArbitration Act’s promotion of voluntary arbitrationagreements. Moses H. Cone Mem’l Hosp. v. MercuryConstr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d765 (1983). State law provisions that have attempted tocondition or limit the availability of an arbitral forumhave been consistently struck down. See, e.g., AT&TMobility, Inc. v. Concepcion, 563 U.S. 333, 336, 131 S.Ct.1740, 179 L.Ed.2d 742 (2011) (conditions on class-widearbitration struck down); OPE Int’l LP v. Chet MorrisonContactors, Inc., 258 F.3d 443, 447 (5th Cir. 2001)(state may not condition enforcement of an arbitrationagreement on absence of a forum selection clause). ThatDOL has retreated from its overreach (although not yetby formal rule amendment) does not detract from theimpermissible 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 BICEexemption anti-arbitration condition).

The sixth “unreasonable” feature of the Fiduciary Rulelies in DOL’s decision to outflank two Congressionalinitiatives to secure further oversight of broker/dealershandling IRA investments and the sale of fixed-indexedannuities. The 2010 Dodd Frank Act amended both theSecurities Exchange Act and the Investment AdvisersAct of 1940, empowering the SEC to promulgateenhanced, uniform standards of conduct for broker-dealers and investment advisers who render “personalizedinvestment advice about securities to a retail customer....”Dodd-Frank Act Sec. 913(g)(1), 124 Stat. 1827-28(2010). Significantly, Dodd-Frank prohibits SEC fromeliminating broker-dealers' “commission[s] or otherstandard compensation.” Dodd-Frank Act Sec. 913(g)(2),124 Stat. at 1828 (2010).

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Another provision of Dodd-Frank was spawned by afederal court’s rejection of an SEC initiative to regulatefixed indexed annuities as securities. See Am. Equity Inv.Life Ins. v. S.E.C., 613 F.3d 166, 179 (D.C. Cir. 2010).In Dodd-Frank, Congress opted to defer such regulationto the states, which have traditionally and under federallaw borne responsibility for thoroughgoing supervision ofthe insurance business. Section 989J accordingly providesthat “fixed indexed annuities sold in states that adoptedthe National Association of Insurance Commissioners’enhanced model suitability regulations, or companiesfollowing such regulations, shall be treated as exemptsecurities not subject to federal regulation.” Dodd-FrankSec. 989J, 124 Stat. 1376, 1949-50 (2010).

The Fiduciary Rule conflicts with both of these efforts.The SEC has the expertise and authority to regulatebrokers and dealers uniformly. DOL has no such statutorywarrant, but far from confining the Fiduciary Rule to IRAinvestors’ transactions, DOL’s regulations effect dramaticindustry-wide changes because it is impractical to separateIRA transactions from non-IRA securities advice andbrokerage. Rather than infringing on SEC turf, DOLought to have deferred to Congress’s very specific Dodd-Frank delegations and conferred with and supportedSEC practices to assist IRA and all other individualinvestors. By presumptively outlawing transaction-basedcompensation as “conflicted,” the Fiduciary Rule alsoundercuts the Dodd-Frank provision that instructed SECnot to prohibit such standard forms of broker-dealers’compensation. And in direct conflict with Congress’sapproach to fixed indexed annuities, DOL’s regulatorystrategy not only deprives sellers of those productsof the enhanced PTE 84-24 exemption but it alsosubjects them to the stark alternatives of using theBIC Exemption, creating entirely new compensationschemes, or withdrawing from the market. WhileCongress exhibited confidence in the states’ insuranceregulation, DOL criticizes the Dodd-Frank provisionsas “insufficient” to protect the “subset” of retirement-related fixed-indexed annuities transactions within DOL’spurview. Certainly, however, most such products are soldto retirement investors, so DOL is occupying the Dodd-Frank turf.

*20 DOL contends that legislation pertaining to theSEC 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 agencystands poised to assert the very same power. DOL’s directimposition on the delegation to SEC is made plain by thetext of Dodd-Frank Section 913(g)(2), which states:

The Commission may promulgaterules to provide that the standard ofconduct for all brokers, dealers, andinvestment advisers, when providingpersonalized investment adviceabout securities to retail customers(and such other customers as theCommission may by rule provide),shall be to act in the best interestof the customer without regard tothe financial or other interest ofthe broker, dealer, or investmentadviser providing the advice. Inaccordance with such rules, anymaterial conflicts of interest shallbe disclosed and may be consentedto by the customer. Such rulesshall provide that such standard ofconduct shall be no less stringentthan the standard applicable toinvestment adviser[s] under sections206(1) and (2) of this Act whenproviding personalized investmentadvice about securities, except theCommission shall not ascribe ameaning to the term customerthat would include an investorin a private fund managed byan investment adviser, where suchprivate fund has entered into anadvisory contract with such adviser.The receipt of compensation basedon commission or fees shall not,in and of itself, be considered aviolation of such standard appliedto a broker, dealer or investmentadviser. (emphasis added)

As a major securities law treatise explains, the genesisof this provision was an SEC initiative commencingin 2006 to address “Trends Blurring the DistinctionBetween Broker-Dealers and Investment Advisers.”See LOUIS LOSS, ET AL., 2 FUNDAMENTALOF SECURITIES REGULATION 1090–94 (2011).Congress was concerned to protect all retail investment

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clients, and there is no evidence that Congress expectedDOL to more restrictively regulate a trillion dollar portionof the market when it delegated the general question tothe SEC (for broker-dealers and registered investmentadvisers) and conditionally deferred to state insurance

practices. 16

Seventh, regardless of the precise status of a “majorquestions” exception to Chevron analysis, see generallyJosh Blackman, Gridlock, 130 HARV. L. REV. 241,261 (2016), there is no doubt that the Supreme Courthas been skeptical of federal regulations crafted fromlong-extant statutes that exert novel and extensivepower over the American economy. See, e.g., King v.Burwell, ––– U.S. ––––, 135 S.Ct. 2480, 2488-89, 192L.Ed.2d 483 (2015) (exhibiting no deference to certainAffordable Care Act regulations, because if Congresshad wished to delegate to the IRS “a question ofdeep ‘economic and political significance[,]’ ... centralto th[e] statutory scheme, ... it surely would have doneso expressly”). The Court rejected a Chevron Step Two“reasonableness” justification for EPA regulations that“would bring about an enormous and transformativeexpansion in EPA’s regulatory authority without clearcongressional authorization.” U.A.R.G., 134 S.Ct. at2444. The Court further stated, “[w]e expect Congressto speak clearly if it wishes to assign to an agencydecisions of vast economic and political significance.”Id. (internal quotation omitted); see also FDA v. Brown& Williamson Tobacco Corp., 529 U.S. 120, 160, 120S.Ct. 1291, 146 L.Ed.2d 121 (2000) (rejecting FDA bid toregulate the tobacco industry); MCI Telecomms. Corp. v.AT&T Co., 512 U.S. 218, 234, 114 S.Ct. 2223, 129 L.Ed.2d182 (1994) (rejecting use of term “modify” in enablingstatute to “effectively...introduc[e]...a whole new regime ofregulation”).

*21 [14] These decisions are not, as DOL contends,distinguishable. They restate fundamental principlesderiving from the Constitution’s separation of powerswithin the federal government. Congress enacts laws thatdefine and, equally important, circumscribe the power ofthe Executive to control the lives of the citizens. Whenagencies within the Executive Branch defy Congressionallimits, they lord it over the people without properauthority. Most instances of regulatory activity, no doubt,are underpinned by direct or necessary consequences ofenabling statutes. But the guiding inquiry under ChevronStep Two is whether Congress intended to delegate

interpretive authority over a question to the agencyasserting 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 statutean unheralded power to regulate a significant portion ofthe American economy....” U.A.R.G., 134 S.Ct. at 2444(internal quotation omitted).

DOL has made no secret of its intent to transformthe trillion-dollar market for IRA investments, annuitiesand insurance products, and to regulate in a new waythe thousands of people and organizations working inthat market. Large portions of the financial servicesand insurance industries have been “woke” by theFiduciary Rule and BIC Exemption. DOL utilized twotransformative devices: it reinterpreted the forty-yearold term “investment advice fiduciary” and exploitedan exemption provision into a comprehensive regulatoryframework. As in the U.A.R.G. case, DOL found“in a long-extant statute an unheralded power toregulate a significant portion of the American economy.”And, although lacking direct regulatory authority overIRA “fiduciaries,” DOL impermissibly bootstrappedwhat should have been safe harbor criteria into“backdoor regulation.” Hearth, Patio & Barbecue Ass’n.v. U.S. Dep’t of Energy, 706 F.3d 499, 507-08 (D.C.Cir. 2013). The Fiduciary Rule thus bears hallmarksof “unreasonableness” under Chevron Step Two andarbitrary and capricious exercises of administrativepower.

CONCLUSION

The APA states that a “reviewing court shall...holdunlawful and set aside agency action...found tobe...arbitrary, capricious,...not in accordance with law”or “in excess of statutory ...authority[ ] or limitations.”5 U.S.C. § 706(2)(A), (C). DOL makes no argumentconcerning severability of the provisions making up theFiduciary Rule and BICE exemption apart from theillegal arbitration waiver. In any event, this comprehensiveregulatory package is plainly not amenable to severance.Based on the foregoing discussion, we REVERSE thejudgment of the district court and VACATE the FiduciaryRule in toto.

JUDGMENT REVERSED; FIDUCIARY RULEVACATE

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CARL E. STEWART, Chief Judge, dissenting:Over the last forty years, the retirement-investmentmarket has experienced a dramatic shift towardindividually controlled retirement plans and accounts.Whereas retirement assets were previously held primarilyin pension plans controlled by large employersand professional money managers, today, individualretirement accounts (“IRAs”) and participant-directedplans, such as 401(k)s, have supplemented pensions asthe retirement vehicles of choice, resulting in individualinvestors having greater responsibility for their ownretirement savings. This sea change within the retirement-investment market also created monetary incentivesfor investment advisers to offer conflicted advice,a potentiality the controlling regulatory frameworkwas not enacted to address. In response to thesechanges, and pursuant to its statutory mandate toestablish nationwide “standards ... assuring the equitablecharacter” and “financial soundness” of retirement-benefit plans, 29 U.S.C. § 1001, the Department of Labor(“DOL”) recalibrated and replaced its previous regulatoryframework. To better regulate conflicted transactionsas concerns IRAs and participant-directed retirementplans, the DOL promulgated a broader, more inclusiveregulatory definition of investment-advice fiduciary underthe Employee Retirement Income Security Act of 1974(“ERISA”) and the Internal Revenue Code (“the Code”).

*22 Despite the relevant context of time and evolvingmarketplace events, Appellants and the panel majorityskew valid agency action that demonstrates an expansive-but-permissible shift in DOL policy as falling outside thestatutory bounds of regulatory authority set by Congressin ERISA and the Code. Notwithstanding their qualmswith these regulatory changes and the effect the DOL’sexercise of its regulatory authority might have on certainsectors of the financial services industry, the DOL’sexercise was nonetheless lawful and consistent with theCongressional 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 donot share the panel majority’s concerns about the DOL’samended regulatory framework, I respectfully dissent.

I.

A comprehensive recitation of the relevant regulatory andstatutory background can be found in the district court’sopinion. See Chamber of Commerce of the United States ofAmerica, et al. v. Hugler, et al., 231 F.Supp.3d 152 (N.D.Tex. 2017). This appeal primarily turns on the DOL’sinterpretation 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 provisionsdefine an investment-advice fiduciary as one who “rendersinvestment advice for a fee or other compensation, director indirect, with respect to any moneys or other propertyof such plan, or has any authority or responsibility todo so.” Id. This statutory definition deliberately casts awide net in assigning fiduciary responsibility with respectto plan assets. See Fiduciary Rule, 81 Fed. Reg. 20,954.Thus, any person who “renders investment advice fora fee or other compensation, direct or indirect,” is aninvestment-advice fiduciary, “regardless of whether theyhave direct control over the plan’s assets, and regardlessof their status as an investment adviser or broker underfederal securities laws.” Id.

For 41 years, the DOL employed a five-part test todetermine whether a person is an investment-advicefiduciary under ERISA and the Code, and that test limitedthe reach of the statutes’ prohibited transaction rulesto those who rendered advice “on a regular basis,” andto instances where such advice “serve[d] as a primarybasis 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-directed401(k) plans, the widespread use of IRAs, and the nowcommonplace rollover of plan assets” from Title I plans toIRAs, thus leaving out of ERISA’s regulatory reach manyinvestment professionals, consultants, and advisers whoplay a critical role in guiding plans and IRA investments.Fiduciary Rule, 81 Fed. Reg. 20,946.

The rule challenged on appeal addresses these and otherchanges in the retirement investment advice market by,inter alia, abandoning the five-part test in favor of adefinition of fiduciary that includes “recommendation[s]as to the advisability of acquiring ... investment propertythat is rendered pursuant to [an] ... understandingthat the advice is based on the particular investmentneeds 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, andpresentation, would reasonably be viewed as a suggestion

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that the advice recipient engage in or refrain fromtaking a particular course of action.” Id. § 2510.3–21(b)(1) (emphasis added). Importantly, the regulatorydefinition of “investment-advice fiduciary” thoroughlyand specifically describes communications that wouldotherwise be covered “recommendations,” and givesexamples of interactions and relationships that, under thebroad regulatory definition of fiduciary, would qualifyas “recommendations” but which are not “appropriatelyregarded as fiduciary in nature” under ERISA and aretherefore circumscribed from the regulation’s definition.See 29 C.F.R. § 2510.3–21(b)-(c) (2016); Fiduciary Rule,

81 Fed. Reg. 20,971. 1

*23 Appellants, organizations and associationsrepresenting businesses and financial service providerswho previously fell outside the DOL’s definition offiduciary but who are now governed by certain of the rule’snew regulatory requirements, challenge the expansion.The panel majority finds many of Appellants’ argumentspersuasive and vacates the DOL’s rule as unreasonableunder Chevron, U.S.A., Inc. v. Natural Resources DefenseCouncil, Inc., 467 U.S. 837, 104 S.Ct. 2778 (1984), andas 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 astatutorily permissible and reasonable exercise of itsregulatory authority, I would affirm the district court’sjudgment.

II.

As the panel majority acknowledges, the DOL’s authorityto implement a new definition of investment-advicefiduciary implicates the two-step analytical frameworkestablished in Chevron. “First, always, is the questionwhether Congress has directly spoken to the precisequestion at issue. If the intent of Congress is clear, thatis the end of the matter; for the court, as well as theagency, must give effect to the unambiguously expressedintent of Congress.” Chevron, 467 U.S. at 842–43, 104S.Ct. 2778. However, “if the statute is silent or ambiguouswith respect to the specific issue, the question for thecourt is whether the agency’s answer is based on apermissible construction of the statute.” Id. at 843, 104S.Ct. 2778 (emphasis added). The agency’s view “governsif it is a reasonable interpretation of the statute—notnecessarily the only possible interpretation, nor even the

interpretation deemed most reasonable by the courts.”Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 218,129 S.Ct. 1498, 173 L.Ed.2d 369 (2009) (emphasis inoriginal). Importantly, a court may not substitute its ownconstruction of a statutory provision of a reasonableinterpretation made by the administrator of an agency.Chevron, 467 U.S. at 844, 104 S.Ct. 2778.

The Chevron inquiry necessarily begins with the text of thestatutory definition of investment-advice fiduciary. See 29U.S.C. § 1002(21)(A)(ii); 26 U.S.C. § 4975(e)(3). Contraryto the panel majority’s protestation, nothing in thestatutory text forecloses the DOL’s current interpretation.The statute does not define the pertinent phrase “rendersinvestment advice,” and ERISA expressly authorizes theDOL to adopt regulations defining “technical and tradeterms used” in the statute. 29 U.S.C. § 1135. As a matterof ordinary usage, there can be no “serious dispute”that someone who provides “[a] recommendation as tothe advisability of acquiring, holding, disposing of, orexchanging, securities or other investment property,” 29C.F.R. 2510.3–21(a), is “render[ing] investment advice.”See Nat’l Ass’n for Fixed Annuities v. Perez, 217 F.Supp.3d1, 23 (D.D.C. Nov. 4, 2016). Additionally, although thepanel majority dismisses the use of dictionary definitionsas an aid in interpreting the statutory text, plain languagedefinitions highlight the uniformity between the statutory

text and the DOL’s regulations. 3 The dictionary defines“advice” as an “opinion or recommendation offered as aguide to action [or] conduct,” and it defines “investment”as “the investing of money or capital in order to gainprofitable returns.” See Random House Dictionary of theEnglish Language (2d ed. 1987). The DOL’s interpretationof “investment advice” all but replicates those definitionsby classifying as fiduciaries only those who provide“recommendations” to investors who reasonably rely ontheir advice and expertise. See 29 C.F.R. § 2510.3–21(a)–(c). Nothing in the phrase “renders investment advice fora fee or other compensation” suggests that the statuteapplies only in the limited context accepted by the panelmajority.

*24 That the text of ERISA does not unambiguouslyforeclose the DOL’s regulatory interpretation of fiduciarysatisfies step one of Chevron. Nonetheless, the panelmajority reaches additional erroneous conclusions tomake a case for a contrary holding. The panel majorityprimarily contends that the DOL’s new interpretationis inconsistent with common law fiduciary standards

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that Congress contemplated and retained in enactingERISA. Under those common law standards, fiduciarystatus turns on the existence of a relationship oftrust and confidence between the fiduciary and theclient, a relationship that the panel majority maintainsnever materializes when a financial services professionaldoes not engage in the type of ongoing transactionalrelationships that plan managers and administratorstraditionally do.

No one seriously challenges that the courts have, at times,looked to the common law of trusts in interpreting thenature and scope of fiduciary duties under ERISA. TheSupreme Court has “recognize[d] that the [ ] fiduciaryduties [found in ERISA] draw much of their contentfrom the common law of trusts,” which “governed mostbenefit plans before ERISA’s enactment.” Varity Corp.v. Howe, 516 U.S. 489, 496, 116 S.Ct. 1065 (1996). Butthe Court has “also recognize[d] ... that trust law doesnot tell the entire story,” and that “ERISA’s standardsand procedural protections partly reflect a congressionaldetermination that the common law of trust did not offercompletely satisfactory protection.” Id. at 497, 116 S.Ct.1065. Accordingly, the Court concluded that “[i]n someinstances, trust law ... offer[s] only a starting point, afterwhich courts must go on to ask whether, or to what extent,the language of the statute, its structure, or its purposesrequire departure from common-law trust requirements.”Id. (emphasis added).

One area in which Congress has departed from thecommon law of trusts is with the statutory definitionof “fiduciary.” ERISA does not define “fiduciary” “interms of formal trusteeship, but in functional terms ofcontrol and authority over the plan, ... thus expandingthe universe of persons subject to fiduciary duties ...”Mertens v. Hewitt Assocs., 508 U.S. 248, 262, 113 S.Ct.2063 (1993) (emphasis added). That is, contrary to thepanel majority’s interpretation, Mertens recognizes thatalthough Congress intended to incorporate the coreprinciples of fiduciary conduct that were developedin the common law of trusts, Congress modified thisapproach where appropriate for employee benefit plans,including in defining who qualifies as a fiduciary underERISA. Indeed, ten years before Mertens, a panel ofthis court recognized that ERISA imposes a duty ona broader class of fiduciaries than did trust law. SeeDonovan 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 abroader class of fiduciaries”) (citing 29 U.S.C. § 1002(21)(1976) ). The panel majority now interprets Mertensvery narrowly, effectively limiting its interpretation ofthe statutory definition of “fiduciary” to reach onlyplan managers, administrators, and other comparableroles. Such a holding, however, runs counter to the veryclear language in Mertens, which interpreted ERISA todefine fiduciaries as “not only the persons named asfiduciaries by a benefit plan ... but also anyone elsewho exercises discretionary control or authority over theplan’s management, administration, or assets.” Mertens,508 U.S. at 262, 113 S.Ct. 2063. Under the currentregime, investment advisers of the sort covered by the newregulatory definition of “investment-advice fiduciary”exercise such control. Because the text of ERISA goesbeyond the common law, and because the purpose ofthe statute does not compel a different result, the textualrendering of “fiduciary” controls and, as explained, doesnot unambiguously foreclose the DOL’s interpretation of“investment-advice fiduciary.” See Varity Corp., 516 U.S.

at 496–97, 116 S.Ct. 1065. 4

*25 It is only after invoking common law trust principlesthat the panel majority turns to the statutory text. Insteadof assessing the DOL’s regulations based on the plainlanguage of the statute, the panel majority relies onseveral extra-statutory sources which purportedly shedlight on how an investment-advice fiduciary should bedefined. In so doing, the panel majority maintains that therelevant provisions in ERISA and the Code contemplateda hard distinction between investment advisers andthose who merely sell retirement products, and that theDOL dispensed with this distinction in the new rule byconferring fiduciary status on one-time sellers of products.

As an initial matter, the new rule does not make one afiduciary for selling a product without a recommendationupon which an investor might reasonably rely. SeeFiduciary Rule, 81 Fed. Reg. 20,984; see also 29 C.F.R.§ 2510.3–21(b). Thus, “if a retirement investor asked abroker to purchase a ... security, the broker would notbecome a fiduciary investment adviser merely becausethe broker ... executed the securities transaction. Such‘purchase and sales’ transactions do not include anyinvestment advice component.” Id. (emphasis added).That the panel majority’s primary concern is expresslyaddressed by the plain language of the new ruleis alone enough to render unavailing any reliance

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on extra-statutory contemporary understandings of theterm “investment advice” as inherently and necessarilydistinctive from pure sales activity (which, again, thenew rule does not purport to regulate). In any event,the sources cited by the panel majority independentlyundermine its ultimate conclusion.

The panel majority first highlights the InvestmentAdvisers Act of 1940 (“the IAA”), which precedes thedisputed regulations by some 76 years and which informedCongress’s use of the phrase “renders investment advicefor a fee or other compensation” in ERISA and theCode. The IAA defines an “investment adviser” as “anyperson who, for compensation, engages in the businessof advising others, either directly or through publicationsor writings, as to the value of securities or as tothe advisability of investing in, purchasing, or sellingsecurities,” 15 U.S.C. § 80b–2(a)(11), and specificallyexcludes from that definition “any broker or dealer whoseperformance of such services is solely incidental to theconduct of his business as a broker or dealer and whoreceives no compensation therefor.” Id. From this, thepanel majority gleans that the distinction in the IAAbetween “investment advisers compensated for renderingadvisory services” and “salespersons compensated onlyfor their sales” was incorporated by Congress intothe concepts of ERISA. This logic is misplaced. “Thedistinction between advisers and brokers contained in the[IAA] was created when Congress define[d] ‘investmentadviser’ broadly and then create[d] ... a precise exemptionfor broker-dealers.” Perez, 217 F.Supp.3d at 26 (quotingFin. Planning Ass’n v. S.E.C., 482 F.3d 481, 489 (D.C. Cir.2007) ) (internal quotations omitted). In ERISA and theCode, however, Congress omitted such an exclusion fromthe definition of “fiduciary.” See 29 U.S.C. § 1002(21)(A);26 U.S.C. § 4975(e)(3)(B). Thus, to the extent Congresshad the IAA in mind as a model when it enacted thestatutory definition of “fiduciary” found in ERISA, thatthe definitions do not exactly align, and specificallythat ERISA’s definition mysteriously omits any statutoryexclusion of broker-dealers, counsels against construingERISA’s definition of “fiduciary” in the way advanced bythe panel majority. See Perez, 217 F.Supp.3d at 26.

Additionally, the panel majority’s reliance on the DOL’soriginal regulation, SEC interpretations of “investmentadvice for a fee,” and case law tying investment advicefor a fee to “ongoing relationships between adviser andclient” are similarly unavailing. First, because the DOL

limited the scope of its original regulation such that itdid not touch the breadth of the statutory definition offiduciary, all interpretations rendered pursuant to thatregulation will necessarily be limited in a way that thenew regulation seeks to remedy. Further, that the SECand case law have interpreted investment advice fora fee as implicating ongoing relationships between anadviser and his client does not take the entire statutoryprovision into consideration. ERISA defines “investment-advice fiduciary” as one who renders investment advice“for a fee or other compensation, direct or indirect.” 29U.S.C. § 1002(21)(A)(ii) (emphasis added). This phrasecontemplates compensation structures other than thoseincorporating fees, i.e. commissions, and which are builton relationships that are more than mere buyer-sellerinteractions, but which do not require ongoing intimaterelationships.

*26 The panel majority also emphasizes that theinvestment-advice provision is “bookended” by twoseparate definitions of fiduciary which purportedlyincorporate common law trust principles and applyto individuals vested with responsibilities to manageand control the plan. From this, the panel majorityextrapolates that the investment advice prong requires theexistence of a “special” relationship so as to harmonizewith the statutory definitions of fiduciary that come beforeand after it. However, that the other two prongs of thestatutory definition of “fiduciary” describe those involvedin managing or administering a plan provides supportfor the opposite conclusion. Because the other disjunctiveprongs of the statutory definition already address “theongoing management [and administration] of an ERISAplan,” the panel majority’s reading of the “investmentadvice” prong would strip that prong of independentmeaning and render it superfluous. See, e.g., U.S. v.Menasche, 348 U.S. 528, 538–39, 75 S.Ct. 513, 99 L.Ed.615 (1955) (“It is our duty to give effect, if possible, toevery clause and word of a statute.”) (citation and internalquotation marks omitted).

In sum, the statutory definition of “fiduciary” does notunambiguously foreclose the DOL’s updated regulatorydefinition of “investment-advice fiduciary.” The text andstructure of the statute support this conclusion, and thepanel majority’s reliance on common law presumptionsand extra-statutory interpretations of “renders investmentadvice for a fee” do not upset this conclusion.Accordingly, I conclude that the DOL acted well

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within the confines set by Congress in implementing thechallenged regulatory package, and said package shouldbe maintained so long as the agency’s interpretation isreasonable.

III.

In applying Chevron step two to cases where an agencyhas changed its existing policy, the court defers to theagency’s permissible interpretation, but only if the agencyhas offered a reasoned explanation for why it chose thatinterpretation. See Encino Motorcars, LLC v. Navarro,––– U.S. ––––, 136 S.Ct. 2117, 2125, 195 L.Ed.2d 382(2016). Analysis at this step is analogous to the “arbitraryor capricious” standard under the APA. See Judulang v.Holder, 565 U.S. 42, 52 n.7, 132 S.Ct. 476, 181 L.Ed.2d449 (2011).

The DOL’s interpretation of “renders investment advice”is reasonably and thoroughly explained. The newinterpretation fits comfortably with the purpose ofERISA, which was enacted with “broadly protectivepurposes” and which “commodiously imposed fiduciarystandards on persons whose actions affect the amount ofbenefits retirement plan participants will receive.” Perez,217 F.Supp.3d at 28 (quoting John Hancock Mut. LifeIns. Co. v. Harris Tr. & Sav. Bank, 510 U.S. 86, 96, 114S.Ct. 517 (1993) ). In light of changes in the retirementinvestment advice market since 1975, mentioned above,the DOL reasonably concluded that limiting fiduciarystatus to those who render investment advice to a planor IRA “on a regular basis” risked leaving retirementinvestors inadequately protected. This is especially sogiven that “one-time transactions like rollovers willinvolve trillions of dollars over the next five years andcan be among the most significant financial decisionsinvestors will ever make.” Perez, 217 F.Supp.3d at 28(citing Fiduciary Rule, 81 Fed. Reg. at 20,954–55). GivenDOL’s reasoned explanation for choosing its most recentinterpretation, I would hold that the agency’s actionpasses muster under step two of Chevron.

Notwithstanding the DOL’s reasoned explanation forthe new regulations, the panel majority maintains thatthe DOL acted unreasonably and arbitrarily when itpromulgated the new fiduciary rule and, in a strainedattempt to justify this conclusion, the panel majoritydisregards the requirement of showing judicial deference

under Chevron by highlighting purported issues with otherprovisions of the regulation. Each of the panel majority’spositions fails for reasons more fully explained below.

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

Beyond its qualms with the new regulatory delineations onwho qualifies as an investment-advice fiduciary, the panelmajority takes substantial issue with the DOL’s exerciseof its exemption authority to amend PTE 84–24 andcreate the new BIC Exemption. The DOL may supplementstatutorily created exemptions by implementing newexemptions under the prohibited transaction rules, whichapply to retirement investment instruments under TitlesI and II and “supplement[ ] the fiduciary’s general dutyof loyalty to the plan’s beneficiaries ... by ... barringcertain transactions deemed ‘likely to injure the pensionplan.’ ” Harris Tr. & Sav. Bank v. Salomon Smith Barney,Inc., 530 U.S. 238, 241–42, 120 S.Ct. 2180, 147 L.Ed.2d187 (2000). ERISA and the Code authorize the DOLto adopt “conditional or unconditional exemption[s]” forotherwise prohibited transactions, the only limitation onthis expansive authority being that the exemption mustbe “administratively feasible,” “in the interest of the planand its participants and beneficiaries,” and “protectiveof the rights of [plan] participants and beneficiaries.” 29U.S.C. § 1108(a); 26 U.S.C. § 4975(c)(2). Consistent withthis broad authority, the DOL granted exemptions forotherwise prohibited transactions in the new regulatorypackage, but conditioned those exemptions on, amongother things, a requirement that the fiduciary take on thesame duties of “prudence” and “loyalty” that bind TitleI fiduciaries. See Fiduciary Rule, 81 Fed. Reg. 21,077,21,176. This condition is only truly meaningful as appliedto advisers under Title II, which must, under the new rule,satisfy new requirements to engage in transactions thatwould otherwise be prohibited.

*27 The panel majority concludes that because the DOLis given no direct statutory authority to regulate IRAplan fiduciaries under Title II, and because the DOLhas used its exemption authority to “subject most ofthese newly regulated actors and transactions to a raftof affirmative obligations,” the agency necessarily abusedits exemption authority. However, the panel majority’sinterpretation of the DOL’s use of its exemption authorityall but ignores the statutory directive given to the DOLto create “conditional or unconditional” exemptions from

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otherwise prohibited transactions. ERISA and the Codedo not qualify the form conditions must take or limitthe scope of the DOL’s exemption authority to mirrorspecific exemptions created by Congress, leaving it up tothe agency to decide whether to impose affirmative ornegative conditions (or none at all) on exemptions fromprohibited transactions. And Congress’s imposition ofbroad regulatory power over Title I plans is not dispositiveof whether Congress intended to foreclose the DOL fromrequiring 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 privateright of action in contravention of Alexander v. Sandoval,532 U.S. 275, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001)by requiring the inclusion of specific contractual termsas a condition of qualifying for and receiving theprohibited transaction exemption. However, the BICExemption does not create a private right of action. “[I]tmerely dictates terms that otherwise-conflicted financialinstitutions must include in written contracts with IRAand other [Title II] owners in order to qualify for theexemption.” Perez, 217 F.Supp.3d at 36. Any actionbrought to enforce the terms of the written contractcreated pursuant to the BIC Exemption would be broughtunder state law, and state law would ultimately control theenforceability of any of the required contractual terms.

The panel majority also urges that in moving fixedindexed annuities from PTE 84–24 to the BIC Exemption,the DOL failed to account for state regulation ofsales of annuities. See Maj. Opn. at –––– – ––––(citing American Equity Inv. Life Ins. Co. v. S.E.C.,613 F.3d 166 (D.C. Cir. 2010) ). However, ERISAcontains no statutory requirement that the DOL checkfor efficiency when changing which annuities qualify fora specific exemption, as was the case in American Equity.Further, before making the relevant amendments to theexemptions, the DOL comprehensively assessed existingsecurities regulation for variable annuities, state insuranceregulation of all annuities, and consulted with numerousgovernment and industry officials, including the SEC, theDepartment of the Treasury, and the Consumer FinancialProtection Bureau, among others. The DOL found theprotections prior to the current rulemaking insufficientto protect investors and acted within its prerogative tomodify the regulatory regime as it deemed necessary.

*28 Similarly, the panel majority observes that because§ 913(g) of the Dodd-Frank Wall Street Reform andConsumer Protection Act, Pub. Law. No. 111–203, 124Stat. 1376 (2010) (“Dodd-Frank Act”) prohibits the SECfrom adopting a standard of conduct that disallowscommissions for broker-dealers, it is implausible thatCongress intended to allow the DOL, through ERISA,to promulgate a regulation that would do just that. Asan initial matter, the DOL’s final rules do not prohibitcommissions for broker-dealers. The rules only modifyalready-existing exemptions from prohibited transactions.As has been the case, if a person or entity qualifies foran exemption, the applicant can still receive commissionsand other forms of third party compensation. Further,“[n]othing in the Dodd-Frank Act indicates that Congressintended to preclude the DOL’s regulation of fiduciaryinvestment advice under ERISA or its application of sucha regulation to securities brokers or dealers.” FiduciaryRule, 81 Fed. Reg. 20,990. In fact, “[the] Dodd-Frank Actspecifically directed the SEC to study the effectiveness ofexisting ... regulatory standards of care under other federaland state authorities,” § 913(b)(1), (c)(1), and “[t]he SEChas ... consistently recognized ERISA as an applicableauthority in this area, noting that advisers entering intoperformance fee arrangements with employee benefitplans covered by [ERISA] are subject to the fiduciaryresponsibility and prohibited transaction provisions ofERISA.” Id. (internal quotation marks omitted).

B. Questions of Deep “Economic and PoliticalImportance”

Finally, the panel majority’s contention that the DOL isusing a “long-extant” statute to implement an “enormousand transformative expansion in regulatory authoritywithout clear congressional authorization” is misplaced.Maj. Opn. at –––– – ––––. The panel majority relies onseveral Supreme Court cases in support of this positionbut fails to recognize a meaningful distinction betweenthose opinions and the case sub judice: in each of thesecases, the relevant agency clearly exceeded the scope ofdelegation created by the enabling statute. See Util. AirRegulatory Grp. v. EPA, ––– U.S. ––––, 134 S.Ct. 2427,2444, 189 L.Ed.2d 372 (2014) (holding that “it would bepatently unreasonable—not to say outrageous—for [the]EPA to insist on seizing expansive power that it admits thestatute is not designed to grant,” and finding that a “long-extant statute [did not give EPA] an unheralded power toregulate a significant portion of the American economy”)

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(emphasis added); FDA v. Brown & Williamson TobaccoCorp., 529 U.S. 120, 159–160, 120 S.Ct. 1291, 146 L.Ed.2d121 (2000) (rendering as invalid regulations in which theFDA departed from statements it had made to Congressfor over ninety years that it did not have jurisdictionover the tobacco industry, and ignoring that Congresshad created a distinct regulatory scheme over the tobaccoindustry and expressly rejected proposals to give the FDAsuch jurisdiction). Here, in contrast, the DOL has actedwithin its delegated authority to regulate financial serviceproviders in the retirement investment industry—whichit has done since ERISA was enacted—and has utilizedits broad exemption authority to create conditionalexemptions on new investment-advice fiduciaries. Thatthe DOL has extended its regulatory reach to cover moreinvestment-advice fiduciaries and to impose additionalconditions on conflicted transactions neither requires norlends to the panel majority’s conclusion that it has actedcontrary to Congress’s directive.

IV.

The panel majority’s conclusion that the DOL exceededits regulatory authority by implementing the regulatorypackage that included a new definition of investment-advice fiduciary and both modified and created newexemptions to prohibited transactions is premised on anerroneous interpretation of the grant of authority givenby Congress under ERISA and the Code. I would holdthat the DOL acted well within its regulatory authority—as outlined by ERISA and the Code—in expanding theregulatory definition of investment-advice fiduciary to thelimits contemplated by the statute, and would uphold theDOL’s implementation of the new rules.

All Citations

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Footnotes1 Suits 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 theNorthern District of Texas.

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.

3 The original definition of an investment advice fiduciary occupied one page in the Federal Register. Definition of theTerm “Fiduciary,” 40 Fed. Reg. 50842, 50842-43 (Oct. 31, 1975). The revised definition is over five pages long, and theassociated exemption rules are complex. The issues raised here can, however, be addressed by paraphrasing the criticallanguage of the regulations, as all parties have done.

4 Exemptions can be “conditional” or “unconditional,” but they must be “(1) administratively feasible, (2) in the interests ofthe plan and of its participants and beneficiaries, and (3) protective of the rights of participants and beneficiaries of suchplan.” 29 U.S.C. § 1108(a); 26 U.S.C. § 4975(c)(2).

5 DOL also created a new Class Exemption for Principal Transactions in Certain Assets Between Investment AdviceFiduciaries and Employee Benefit Plans and IRAs that is “functionally identical” to the BICE and allows financialinstitutions 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 theparties recommended, our discussion treats these provisions alike by referencing BICE alone for convenience.

6 Given these other grounds for rejecting the Fiduciary Rule, and consistent with principle of constitutional avoidance, weneed not address the First Amendment issue raised by one of the appellants.

7 In Nationwide Mut. Ins. Co. v. Darden, 503 U.S. at 322-23, 112 S.Ct. 1344, the Supreme Court invoked the common lawto interpret ERISA’s definition of “employee.”

8 Worth noting is that if the Fiduciary Rule is upheld, it places broker-dealers who work with clients about both individualretirement plans and ordinary brokerage accounts in an untenable position; they will be covered by two separate, complexregulatory 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 beforeany comparison may be drawn, we reference that statute as background authority, which demonstrates Congressionalawareness, when ERISA was enacted, of the difference between a fiduciary’s offering regular investment advice for a feeand ordinary brokerage transactions. There is nothing illogical in reading ERISA’s 1974 definition of “fiduciary” to embody

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a well-accepted distinction. See Sekhar v. U.S., 570 U.S. 729, 133 S.Ct. 2720, at 2724, 186 L.Ed.2d 794 (2013)(observing,“if a word is obviously transplanted from another legal source, whether the common law or other legislation, it brings theold 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).

11 The dissent appears to contend that the “investment advice fiduciary” prong of ERISA’s definition would be “stripped ofmeaning” by the other two prongs of that definition were it required to incorporate traditional fiduciary standards. On thecontrary, each provision covers a distinct aspect of ERISA plan governance: control over the management or assets ofthe 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.

12 For the same reason, DOL’s reliance on Varity Corp. and Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143 (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-fiduciarypositions, the individual must be acting as a fiduciary to be subject to ERISA fiduciary duties. See Pegram, 530 U.S.at 224–26, 120 S.Ct. 2143, Varity Corp., 516 U.S. at 498, 116 S.Ct. 1065. Again, the trust-and-confidence standard isconsistent, not inconsistent, with those holdings.

13 As noted at the beginning of this analysis, the Fiduciary Rule’s overbreadth flows from DOL’s concession that any financialservices or insurance salesman who lacks a relationship of trust and confidence with his client can nonetheless bedeemed 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-liketrust 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 isso overbroad that ... it must be accompanied by a raft of corrections.”).

14 This court is bound by the Supreme Court’s decisions to defer to an agency’s “reasonable” construction of an ambiguousstatute within its realm of enforcement responsibility. Nevertheless, the Chevron doctrine has been questioned onsubstantial grounds, including that it represents an abdication of the judiciary’s duty under Article III “to say what the lawis,” and thus turns over judicial power to politically unaccountable employees of the Executive Department. See, e.g.,Michigan v. E.P.A., ––– U.S. ––––, 135 S.Ct. 2699, 2712, 192 L.Ed.2d 674 (2015) (Thomas, J., concurring) (“Chevrondeference precludes judges from exercising [independent] judgment, forcing them to abandon what they believe is ‘thebest reading of an ambiguous statute’ in favor of an agency’s construction.”) (quoting Nat’l Cable & Telecomm. Ass’nv. Brand X Internet Servs., 545 U.S. 967, 983, 125 S.Ct. 2688, 162 L.Ed.2d 820 (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 forthe abdication of the judicial duty.”); Esquivel-Quintana v. Lynch, 810 F.3d 1019, 1027-32 (6th Cir. 2016), rev’d on othergrounds, ––– U.S. ––––, 137 S.Ct. 1562, 198 L.Ed.2d 22 (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 provisionshave 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 wemust respond to their arguments.

15 See, e.g., Burton v. R. J. Reynolds Tobacco Co., 397 F.3d 906, 911-913 (10th Cir. 2005) (noting “the weight of coreauthority 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 particularizedinterest in its inventory.”); Schlumberger Tech. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997) (“while a fiduciary orconfidential relationship may arise from the circumstances of a particular case, to impose such a relationship in a businesstransaction, the relationship must exist prior to, and apart from, the agreement made the basis of the suit;” and “meresubjective trust does not, as a matter of law, transform arm’s-length dealing into a fiduciary relationship”).

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, 80 S.Ct. 326, 4 L.Ed.2d 334 (1960). In this case, however, Congress madeplain the comprehensive scope of its intent. Congress had to be aware of the enormous impact of IRA investments onthe overall market for personalized investment advice to retail customers. It is unreasonable to presume Congress wouldnot have referred to—or carved out--DOL’s claimed broad power over ERISA Title II transactions. Instead, the lack of

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any reference or carve-out in Dodd-Frank strongly suggests Congress, like DOL itself (until after 2010), did not supposesuch DOL power was hidden in the interstices of ERISA.

1 This is an important point. The DOL has noted that the “proposed general definition of investment advice was intentionallybroad to avoid weaknesses of the 1975 regulation and to reflect the broad sweep of the statutory text.” FiduciaryRule, 81 Fed. Reg. 20,971. Realizing that “standing alone” the new definition “could sweep in some relationships thatare not appropriately regarded as fiduciary in nature” and that the DOL did “not believe Congress intended to coveras fiduciary relationships,” the DOL created “carve-outs” to exclude specific activities and communications from thedefinition of fiduciary investment advice. Fiduciary Rule, 81 Fed. Reg. 20,948–49. After receiving comments on thatproposal, the DOL eliminated the term “carve-out” from the final regulation and articulated with greater specificity thenature of communications and activities that would be regarded as fiduciary-creating “recommendations” while expresslyproscribing 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 Amendmentclaims. Because I would uphold the DOL’s regulations, I would also reject Appellants’ First Amendment claims as eitherwaived or otherwise without merit.

3 The panel majority repudiates the use of dictionary definitions based on the Supreme Court’s preference for commonlaw understandings under ERISA in Varity Corp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065 (1996). There, the SupremeCourt was analyzing whether an employer’s actions fell within the statutory definition of fiduciary, and specifically whetherthe 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, 116 S.Ct. 1065. Because the terms “fiduciary” and specifically trust“administration” were given a legal meaning under the common law, the Court proceeded to assess the employer’sactions using standards set under common law trust principles related to plan administration. Id. at 502, 116 S.Ct. 1065.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.

4 Accepting as true that the statutory definition of “investment-advice fiduciary” continues to be informed by the commonlaw, I am not persuaded that the DOL’s interpretation conflicts with common law trust principles. Throughout the newregulation, the DOL emphasizes that “ERISA safeguards plan participants by imposing trust law standards of care andundivided loyalty on plan fiduciaries,” Fiduciary Rule, 81 Fed. Reg. 20946, and proscribed certain communications fromthe new definition of investment-advice fiduciary to “avoid[ ] burdening activities that do not implicate relationships oftrust.” Fiduciary Rule, 81 Fed. Reg. 20,950. Additionally, the DOL found that “[i]n the retail IRA marketplace, growingconsumer demand for personalized advice ... has pushed brokers to offer comprehensive guidance services rather thanjust transactional support.” Fiduciary Rule, 81 Fed. Reg. at 20,949 (emphasis added). These references to common lawtrust principles indicate the DOL’s intention to regulate only those relationships in which investors rely on the adviceand recommendation of financial professionals when making decisions concerning their retirement plans. Nothing in theregulations explicitly conflict with that standard.

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 definitioncould “sweep in some relationships that are not appropriately regarded as fiduciary in nature and that the Departmentdoes not believe Congress intended to cover as fiduciary relationships.” See Maj. Opn. at p. –––– (quoting Fiduciary Rule,81 Fed. Reg. 20,948); see also Maj. Opn. at ––––. However, the quoted language upon which the panel majority’s opinionrelies does not cite the BIC Exemption as the regulatory provision intended to keep the new definition of investment-advicefiduciary in line with the statutory definition of the same, but to certain exclusions of communications between advisersand plan beneficiaries within the new regulatory definition of investment-advice fiduciary. Note 1, supra, describes how theregulatory definition of investment-advice fiduciary explicitly circumscribes those “relationships that are not appropriatelyregarded as fiduciary in nature.” The BIC Exemption is not the source of this exclusion (which serves to specify who isand who is not an investment-advice fiduciary), but it is the new definition of investment-advice fiduciary itself that limitsits own reach. Relatedly, it is illogical to cite the BIC Exemption as creating an external limit on the new definition offiduciary, as the entire purpose of the exemption is to impose requirements on parties who fall within the new definitionof fiduciary (and consequently fall outside the group of advisers who are excluded from the new definition).

End of Document © 2018 Thomson Reuters. No claim to original U.S. Government Works.