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Chamber of Commerce of United States of America v. United States Department of Labor

United States Court of Appeals, Fifth Circuit

March 15, 2018

CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; FINANCIAL SERVICES INSTITUTE, INCORPORATED; FINANCIAL SERVICES ROUNDTABLE; GREATER IRVING-LAS COLINAS CHAMBER OF COMMERCE; HUMBLE AREA CHAMBER OF COMMERCE, doing business as Lake Houston Chamber of Commerce; INSURED RETIREMENT INSTITUTE; LUBBOCK CHAMBER OF COMMERCE; SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION; TEXAS ASSOCIATION OF BUSINESS, Plaintiffs-Appellants
v.
UNITED STATES DEPARTMENT OF LABOR; R. ALEXANDER ACOSTA, SECRETARY, U.S. DEPARTMENT OF LABOR, Defendants-Appellees AMERICAN COUNCIL OF LIFE INSURERS; NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS; NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - TEXAS; NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - AMARILLO; NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - DALLAS; NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - FORT WORTH; NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - GREAT SOUTHWEST; NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS - WICHITA FALLS; Plaintiffs-Appellants
v.
UNITED STATES DEPARTMENT OF LABOR; R. ALEXANDER ACOSTA, SECRETARY, U.S. DEPARTMENT OF LABOR, Defendants-Appellees INDEXED ANNUITY LEADERSHIP COUNCIL; LIFE INSURANCE COMPANY OF THE SOUTHWEST; AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY; MIDLAND NATIONAL LIFE INSURANCE COMPANY; NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE, Plaintiffs-Appellants
v.
R. ALEXANDER ACOSTA, SECRETARY, U.S. DEPARTMENT OF LABOR; UNITED STATES DEPARTMENT OF LABOR, Defendants-Appellees

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

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

          EDITH H. JONES, Circuit Judge.

         Three business groups[1] filed suits challenging the "Fiduciary Rule" promulgated by the Department of Labor (DOL) in April 2016. The Fiduciary Rule is a package of seven different rules that broadly reinterpret the term "investment advice fiduciary" and redefine exemptions to provisions concerning fiduciaries that appear in the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406, 88 Stat. 829 (ERISA), codified as amended at 29 U.S.C. § 1001 et seq, and the Internal Revenue Code, 26 U.S.C. § 4975. The stated purpose of the new rules is to regulate in an entirely new way hundreds of thousands of financial service providers and insurance companies in the trillion dollar markets for ERISA plans and individual retirement accounts (IRAs). The business groups' challenge proceeds on multiple grounds, including (a) the Rule's inconsistency with the governing statutes, (b) DOL's overreaching to regulate services and providers beyond its authority, (c) DOL's imposition of legally unauthorized contract terms to enforce the new regulations, (d) First Amendment violations, and (e) the Rule's arbitrary and capricious treatment of variable and fixed indexed annuities.

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

         I. BACKGROUND

         As might be expected by a Rule that fundamentally transforms over fifty years of settled and hitherto legal practices in a large swath of the financial services and insurance industries, a full explanation of the relevant background is required to focus the legal issues raised here.

         Congress passed ERISA in 1974 as a "comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983). Title I of ERISA confers on the DOL far-reaching regulatory authority over employer- or union-sponsored retirement and welfare benefit plans. 29 U.S.C. §§ 1108(a)-(b), 1135. A "fiduciary" to a Title I plan is subject to duties of loyalty and prudence. 29 U.S.C. § 1104(a)(1)(A)-(B). Fiduciaries may not engage in several "prohibited transactions, " including transactions in which the fiduciary receives a commission paid by a third party or compensation that varies based on the advice provided. 29 U.S.C. § 1106(b)(3). ERISA authorizes lawsuits by the DOL, plan participants or beneficiaries against fiduciaries to enforce these duties. 29 U.S.C. § 1132(a).

         ERISA Title II created tax-deferred personal IRAs and similar accounts within the Internal Revenue Code. 26 U.S.C. § 4975(e)(1)(B).[2] Title II did not authorize DOL to supervise financial service providers to IRAs in parallel with its power over ERISA plans. Moreover, fiduciaries to IRAs are not, unlike ERISA plan fiduciaries, subject to statutory duties of loyalty and prudence. Instead, Title II authorized the Treasury Department, through the IRS, to impose an excise tax on "prohibited [i.e. conflicted] transactions" involving fiduciaries of both ERISA retirement plans and IRAs. 26 U.S.C. § 4975 (a), (b), (f)(8)(E). DOL was authorized only to grant exemptions from the prohibited transactions provision, 29 U.S.C. § 1108(a), 26 U.S.C. § 4975(c)(2), and to "define accounting, technical and trade terms" that appear in both laws, 29 U.S.C. § 1135. Title II did not create a federal right of action for IRA owners, but state law and other remedies remain available to those investors.

         The critical term "fiduciary" is defined alike in both Title I, 29 U.S.C. § 1002(21)(A), and Title II, 26 U.S.C. § 4975(e)(3). In Title I, fiduciaries are subject to comprehensive DOL regulation, while in Title II individual plans, they are subject to the prohibited transactions provisions. The provision states that "a person is a fiduciary with respect to a plan to the extent he

• exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, " 29 U.S.C. § 1002(21)(A)(i);
• "renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, " 29 U.S.C. § 1002(21)(A)(ii); or
• "has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A)(iii).

         Subsection ii of the "fiduciary" definition is in issue here.

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

         The 1975 regulation captured the essence of a fiduciary relationship known to the common law as a special relationship of trust and confidence between the fiduciary and his client. See, e.g., George Taylor Bogert, et al., Trusts & Trustees § 481 (2016 update). The regulation also echoed the then thirty-five-year old distinction drawn between an "investment adviser, " who is a fiduciary regulated under the Investment Advisers Act, and a "broker or dealer" whose advice is "solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor." 15 U.S.C. § 80b-2(a)(11)(C). Thus, the DOL's original regulation specified that a fiduciary relationship would exist only if, inter alia, the adviser's services were furnished "regularly" and were the "primary basis" for the client's investment decisions. 29 C.F.R. § 2510.3-21(c)(1) (2015).

         In the decades following the passage of ERISA, the use of participant-directed IRA plans has mushroomed as a vehicle for retirement savings. Additionally, as members of the baby-boom generation retire, their ERISA plan accounts will roll over into IRAs. Yet individual investors, according to DOL, lack the sophistication and understanding of the financial marketplace possessed by investment professionals who manage ERISA employer-sponsored plans. Further, individuals may be persuaded to engage in transactions not in their best interests because advisers like brokers and dealers and insurance professionals, who sell products to them, have "conflicts of interest." DOL concluded that the regulation of those providing investment options and services to IRA holders is insufficient. One reason for this deficiency is the governing statutory architecture:

Although ERISA's statutory fiduciary obligations of prudence and loyalty do not govern the fiduciaries of IRAs and other plans not covered by ERISA, these fiduciaries are subject to prohibited transaction rules under the [Internal Revenue] Code. The statutory exemptions in the Code apply and the [DOL] has been given the statutory authority to grant administrative exemptions under the Code. [footnote omitted] In this context, however, the sole statutory sanction for engaging in the illegal transactions is the assessment of an excise tax enforced by the [IRS].

         Definition of Fiduciary, 81 Fed. Reg. at 20946, 20953 (Apr. 8, 2015) (to be codified at 29 C.F.R. pts. 2509, 2510, 2550).

         A second reason for the gap lies in the terms of the 1975 regulation's definition of an investment advice fiduciary. In particular, by requiring that the advice be given to the customer on a "regular basis" and that it must also be the "primary basis" for investment decisions, the definition excluded onetime transactions like IRA rollovers. As DOL saw it, the term "adviser" should extend well beyond investment advisers registered under the Investment Advisers Act of 1940 or under state law. Semantically, the term "investment advice fiduciary" can include "an individual or entity who is, among other things, a representative of a registered investment adviser, a bank or similar financial institution, an insurance company, or a broker-dealer." 81 Fed. Reg. at 20946 n.1. Further, "[u]nless they are fiduciaries, . . . these consultants and advisers are free under ERISA and the Code, not only to receive such conflicted compensation, but also to act on their conflicts of interest to the detriment of their customers." 81 Fed. Reg. at 20956.

         Beginning in 2010, DOL set out to fill the perceived gap. The result, announced in April 2016, was an overhaul of the investment advice fiduciary definition, together with amendments to six existing exemptions and two new exemptions to the prohibited transaction provision in both ERISA and the Code (collectively, as previously noted, the Fiduciary Rule). The Fiduciary Rule is of monumental significance to the financial services and insurance sectors of the economy. The package of regulations and accompanying explanations, although full of repetition, runs 275 pages in the Federal Register. DOL estimates that compliance costs imposed on the regulated parties might amount to $31.5 billion over ten years with a "primary estimate" of $16.1 billion. 81 Fed. Reg. at 20951. In a novel assertion of DOL's power, the Fiduciary Rule directly disadvantages the market for fixed indexed annuities in comparison with competing annuity products. Finally, with unintentional irony, DOL pledged to alleviate the regulated parties' concerns about "compliance and interpretive issues" following this "issuance of highly technical or significant guidance" by drawing attention to its "broad assistance for regulated parties on the Affordable Care Act regulations . . . ." 81 Fed. Reg. at 20947.

         II. THE FIDUCIARY RULE

         Now to the relevant highlights of the Fiduciary Rule.[3] In lieu of the 1975 definition of an investment advice fiduciary, the Fiduciary Rule provides that an individual "renders investment advice for a fee" whenever he is compensated in connection with a "recommendation as to the advisability of" buying, selling, or managing "investment property." 29 C.F.R. § 2510.3-21(a)(1) (2017). A fiduciary duty arises, moreover, when the "investment advice" is directed "to a specific advice recipient . . . regarding the advisability of a particular investment or management decision with respect to" the recipient's investment property. 29 C.F.R. § 2510.3-21(a)(2)(iii) (2017).

         To be sure, the new rule purports to withdraw from fiduciary status communications that are not "recommendations, " i.e., those in which the "content, context, and presentation" would not objectively be viewed as "a suggestion that the advice recipient engage in or refrain from taking a particular course of action." 29 C.F.R. § 2510.3-21(b)(1) (2017). But the more individually tailored the recommendation is, the more likely it will render the "adviser" a fiduciary. Id.

         Critically, the new definition dispenses with the "regular basis" and "primary basis" criteria used in the regulation for the past forty years. Consequently, it encompasses virtually all financial and insurance professionals who do business with ERISA plans and IRA holders. Stockbrokers and insurance salespeople, for instance, are exposed to regulations including the prohibited transaction rules. The newcomers are thus barred, without an exemption, from being paid whatever transaction- based commissions and brokerage fees have been standard in their industry segments because those types of compensation are now deemed a conflict of interest.

         The second novel component of the Fiduciary Rule is a "Best Interest Contract Exemption, " (BICE) which, if adopted by "investment advice fiduciaries, " allows them to avoid prohibited transactions penalties. 81 Fed. Reg. 21002 (Apr. 8, 2016), corrected at 81 Fed. Reg. 44773 (July 11, 2016), and amended by 82 Fed. Reg. 16902 (Apr. 7, 2017). The BICE and related exemptions were promulgated pursuant to DOL's authority to approve prohibited transaction exemptions (PTE's) for certain classes of fiduciaries or transactions. 29 U.S.C. § 1108(a), 26 U.S.C. § 4975(c)(2).[4] The BICE was intended to afford such relief because, as DOL candidly acknowledged, the new standard could "sweep in some relationships that are not appropriately regarded as fiduciary in nature and that the Department does not believe Congress intended to cover as fiduciary relationships." 81 Fed. Reg. At 20948.

         The BICE supplants former exemptions with a web of duties and legal vulnerabilities. To qualify for a BIC Exemption, providers of financial and insurance services must enter into contracts with clients that, inter alia, affirm their fiduciary status; incorporate "Impartial Conduct Standards" that include the duties of loyalty and prudence; "avoid[] misleading statements;" and charge no more than "reasonable compensation." As noted above, Title II service providers to IRA clients are not statutorily required to abide by duties of loyalty and prudence. Yet, to qualify as not being "investment advice fiduciaries" per the new definition, the financial service providers must deem themselves fiduciaries to their clients. In addition, the contracts may not include exculpatory clauses such as a liquidated damages provision nor may they require class action waivers. DOL contends that the enforceability of the BICE-created contract, "and the potential for liability" it offers, were "central goals of this regulatory project." 81 Fed. Reg. at 21021, 21033. In these respects, a BIC Exemption comes at a high price.[5]

         The third relevant element of the Fiduciary Rule is the amended Prohibited Transaction Exemption 84-24. Since 1977, that exemption had covered transactions involving insurance and annuity contracts and permitted customary sales commissions where the terms were at least as favorable as those at arm's-length, provided for "reasonable" compensation, and included certain disclosures. 49 Fed. Reg. 13208, 13211 (Apr. 3, 1984); see 42 Fed. Reg. 32395, (June 24, 1977) (precursor to PTE 84-24). As amended in the Fiduciary Rule package, PTE 84-24 now subjects these transactions to the same Impartial Conduct Standards as in the BICE exemption. 81 Fed. Reg. 21147 (Apr. 8, 2016), corrected at 81 Fed. Reg. 44786 (July 11, 2015), and amended by 82 Fed. Reg. 16902 (Apr. 7, 2017). But DOL removed fixed indexed annuities from the more latitudinarian PTE 84-24, leaving only fixed-rate annuities within its scope. In practice, this action places a disproportionate burden on the market for fixed indexed annuities, as opposed to competing annuity products.

         The President has directed DOL to reexamine the Fiduciary Rule and "prepare an updated economic and legal analysis" of its provisions, 82 Fed. Reg. 9675 (Feb. 3, 2017), and the effective date of some provisions has been extended to July 1, 2019. The case, however, is not moot. The Fiduciary Rule has already spawned significant market consequences, including the withdrawal of several major companies, including Metlife, AIG and Merrill Lynch from some segments of the brokerage and retirement investor market. Companies like Edward Jones and State Farm have limited the investment products that can be sold to retirement investors. Confusion abounds-how, for instance, does a company wishing to comply with the BICE exemption document and prove that its salesman fostered the "best interests" of the individual retirement investor client? The technological costs and difficulty of compliance compound the inherent complexity of the new regulations. Throughout the financial services industry, thousands of brokers and insurance agents who deal with IRA investors must either forgo commission-based transactions and move to fees for account management or accept the burdensome regulations and heightened lawsuit exposure required by the BICE contract provisions. It is likely that many financial service providers will exit the market for retirement investors rather than accept the new regulatory regime.

         Further, as DOL itself recognized, millions of IRA investors with small accounts prefer commission-based fees because they engage in few annual trading transactions. Yet these are the investors potentially deprived of all investment advice as a result of the Fiduciary Rule, because they cannot afford to pay account management fees, or brokerage and insurance firms cannot afford to service small accounts, given the regulatory burdens, for management fees alone.

         The district court rejected all of the appellants' challenges to the Fiduciary Rule. Timely appeals were filed.

         III. DISCUSSION

         Appellants pose a series of legal issues, all of which are reviewed de novo on appeal, Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 601 (5th Cir. 2000), and nearly all of which we must address. The principal question is whether the new definition of an investment advice fiduciary comports with ERISA Titles I and II. Alternatively, is the new definition "reasonable" under Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984) and not violative of the Administrative Procedures Act (APA), 5 U.S.C. § 706(2)(A) (2016)?

         Beyond that threshold are the questions whether the BICE exemption, including its impact on fixed indexed annuities, asserts affirmative regulatory power inconsistent with the bifurcated structure of Titles I and II and is invalid under the APA. Further, are the required BICE contractual provisions consistent with federal law in creating implied private rights of action and prohibiting certain waivers of arbitration rights?[6]

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

         DOL expanded the statutory term "fiduciary" by redefining one out of three provisions explaining the scope of fiduciary responsibility under ERISA and the Internal Revenue Code. The second of these three provisions states that

a person is a fiduciary with respect to a plan to the extent . . . he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so[.]

29 U.S.C. § 1002(21)(A)(ii); 26 U.S.C. § 4975(e)(3)(B). For the past forty years, DOL has considered the hallmarks of an "investment advice" fiduciary's business to be its "regular" work on behalf of a client and the client's reliance on that advice as the "primary basis" for her investment decisions. 29 C.F.R. § 2510.3-21(c)(1) (2015). The Fiduciary Rule's expanded coverage is best explained by variations of the following hypothetical advanced by the Chamber of Commerce: a broker-dealer otherwise unrelated to an IRA owner tells the IRA owner, "You'll love the return on X stock in your retirement plan, let me tell you about it" (the "investment advice"); the IRA owner purchases X stock; and the broker-dealer is paid a commission (the "fee or other compensation"). Based on this single sales transaction, as DOL agrees, the broker-dealer has now been brought within the Fiduciary Rule. The same consequence follows for insurance agents who promote annuity products.

         Expanding the scope of DOL regulation in vast and novel ways is valid only if it is authorized by ERISA Titles I and II. A regulator's authority is constrained by the authority that Congress delegated it by statute. Where the text and structure of a statute unambiguously foreclose an agency's statutory interpretation, the intent of Congress is clear, and "that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron, 467 U.S. at 842-43. To decide whether the statute is sufficiently capacious to include the Fiduciary Rule, we rely on the conventional standards of statutory interpretation and authoritative Supreme Court decisions. City of Arlington v. FCC, 133 S.Ct. 1863, 1868 (2013) (quoting Chevron, 467 U.S. at 842-43). The text, structure, and the overall statutory scheme are among the pertinent "traditional tools of statutory construction." See Chevron, 467 U.S. at 843 n.9.

         We conclude that DOL's interpretation of an "investment advice fiduciary" relies too narrowly on a purely semantic construction of one isolated provision and wrongly presupposes that the provision is inherently ambiguous. Properly construed, the statutory text is not ambiguous. Ambiguity, to the contrary, "is a creature not of definitional possibilities but of statutory context." Brown v. Gardner, 513 U.S. 115, 118 (1994). Moreover, all relevant sources indicate that Congress codified the touchstone of common law fiduciary status-the parties' underlying relationship of trust and confidence-and nothing in the statute "requires" departing from the touchstone. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 311 (1992) (where a term in ERISA has a "settled meaning under … the common law, a court must infer, unless the statute otherwise dictates, that Congress mean[t] to incorporate the established meaning") (internal quotation omitted) (emphasis added).

         1. The Common Law Presumptively Applies

         Congress's use of the word "fiduciary" triggers the "settled principle of interpretation that, absent other indication, 'Congress intends to incorporate the well-settled meaning of the common-law terms it uses.'" United States v. Castleman, 134 S.Ct. 1405, 1410 (2014) (quoting Sekhar v. United States, 133 S.Ct. 2720, 2724 (2013)). Indeed, it is "the general rule that 'a common-law term of art should be given its established common-law meaning, ' except 'where that meaning does not fit.'" Id. (quoting Johnson v. United States, 559 U.S. 133, 139 (2010)). This general presumption is particularly salient in analyses of ERISA, which has its roots in the common law. See, e.g., Tibble v. Edison Int'l, 135 S.Ct. 1823, 1828 (2015) ("In determining the contours of an ERISA fiduciary's duty, courts often must look to the law of trusts."); Kennedy v. Plan Adm'r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 294-96 (2009); Aetna Health Inc. v. Davila, 542 U.S. 200, 218-19 (2004); Pegram v. Herdrich, 530 U.S. 211, 223-24 (2000); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989).

         The common law term "fiduciary" falls within the scope of this presumption. In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court cited Congress's use of "fiduciary" as one example of "ERISA abound[ing] with the language and terminology of trust law." 489 U.S. at 110 (citing 29 U.S.C. § 1002(21)(A)). More importantly for present purposes, the Court rejected dictionary definitions in favor of the common law when analyzing the statutory definition of "fiduciary" in Varity Corp. v. Howe, 516 U.S. 489 (1996). There, the Court was tasked with determining the meaning of the word "administration, " which appears in another of the tripartite examples of a "fiduciary, " 29 U.S.C. § 1002(21)(A)(iii). See Varity Corp., 516 U.S. at 502. The Court noted that "[t]he dissent look[ed] to the dictionary for interpretive assistance, " but the Court expressly declined to follow that route: "Though dictionaries sometimes help in such matters, we believe it more important here to look to the common law, which, over the years, has given to terms such as 'fiduciary' and trust 'administration' a legal meaning to which, we normally presume, Congress meant to refer." Id. The Court then considered the "ordinary trust law understanding of fiduciary 'administration'" to determine that an entity "was acting as a fiduciary." Id. at 502-03.

         The common law understanding of fiduciary status is not only the proper starting point in this analysis, but is as specific as it is venerable. Fiduciary status turns on the existence of a relationship of trust and confidence between the fiduciary and client. "The concept of fiduciary responsibility dates back to fiducia of Roman law, " and "[t]he entire concept was founded on concepts of sanctity, trust, confidence, honesty, fidelity, and integrity." George M. Turner, Revocable Trusts § 3:2 (Sept. 2016 Update). Indeed, "[t]he development of the term in legal history under the Common Law suggested a situation wherein a person assumed the character of a trustee, or an analogous relationship, where there was an underlying confidence involved that required scrupulous fidelity and honesty." Id. Another treatise addresses relationships "which require trust and confidence, " and explains that "[e]quity has always taken an active interest in fostering and protecting these intimate relationships which it calls 'fiduciary.'" George G. Bogert, et al., Trusts & Trustees § 481 (2017 Update). Yet another treatise describes fiduciaries as "individuals or corporations who appear to accept, expressly or impliedly, an obligation to act in a position of trust or confidence for the benefit of another or who have accepted a status or relationship understood to entail such an obligation, generating the beneficiary's justifiable expectations of loyalty." 3 Dan B. Dobbs, et al., The Law of Torts § 697 (2d ed. June 2017 Update). Notably, DOL does not dispute that a relationship of trust and confidence is the sine qua non of fiduciary status.

         Congress did not expressly state the common law understanding of "fiduciary, " but it provided a good indicator of its intention. In § 1002, ERISA's definitional section, 41 of 42 provisions begin by stating, "[t]he term ["X"] means . . . ." 29 U.S.C. § 1002(1)-(20), (22)-(42). For example, § 1002(6) begins, "[t]he term 'employee' means any individual employed by an employer."[7] Similarly, § 1002(8) begins, "[t]he term 'beneficiary' means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." In each case, Congress placed a word or phrase in quotation marks before defining the word or phrase.

         The unique provision in which Congress did not take that route delineates the term "fiduciary." Instead, Congress stated that "a person is a fiduciary with respect to a plan to the extent" he performs any of the enumerated functions. Id. § 1002(21)(A). That Congress did not place "fiduciary" in quotation marks indicates Congress's decision that the common law meaning was self-explanatory, and it accordingly addressed fiduciary status for ERISA purposes in terms of enumerated functions. See John Hancock Mut. Life Ins. v. Harris Tr. & Sav. Bank, 510 U.S. 86, 96-97 (1993) (the words "to the extent" in ERISA are "words of limitation").

         In any event, "absent other indication, 'Congress intend[ed] to incorporate the well-settled meaning'" of "fiduciary"-the very essence of which is a relationship of trust and confidence. See Castleman, 134 S.Ct. at 1410 (quoting Sekhar, 133 S.Ct. at 2724).

         2. Displacement of the Presumption?

         DOL concedes the relevance of the common-law presumption and the common-law trust-and-confidence standard but then places all its eggs in one basket: displacement of the presumption. Invoking its favorite phrases from Varity Corp., DOL argues that the common law is only "a starting point" and the presumption "is displaced if inconsistent with 'the language of the statute, its structure, or its purposes.'" (quoting Varity Corp., 516 U.S. at 497) (emphasis removed). Displacement should occur here, DOL continues, because "DOL reasonably interpreted ERISA's language, structure, and purpose to go beyond the trust-and-confidence standard."

         As a preliminary matter, DOL neglects to mention two aspects of Varity Corp. that cut against its position. First, the phrase quoted above is significantly less absolute than DOL lets on: "In some instances, trust law will offer only a starting point, after which courts must go on to ask whether, or to what extent, the language of the statute, its structure, or its purposes require departing from common-law trust requirements." Varity Corp., 516 U.S. at 497 (emphases added). Thus, it is not the case, as DOL suggests, that any perceived inconsistency automatically requires jettisoning the common-law understanding of "fiduciary." Second, although the Court suggested that in some instances the common law will be "only a starting point, " the Court went on specifically to reject reliance on dictionary definitions when interpreting the statutory definition of "fiduciary" and reverted to the common law. See id. at 502-03. Thus, Varity Corp. reinforces rather than rejects the common law when interpreting ERISA.

         Even more important, DOL acknowledges appellants' argument "that there is nothing inherently inconsistent between the trust-and-confidence standard and ERISA's definition" of "fiduciary." The DOL's only response is that it "is not required to adopt semantically possible interpretations merely because they would comport with common-law standards." But this proves appellants' point: adopting "semantically possible" interpretations that do not "comport with common law standards" is contrary to Varity Corp. because the statute does not "require departing from [the] common-law" trust-and-confidence standard. Id ...


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