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
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
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
R. ALEXANDER ACOSTA, SECRETARY, U.S. DEPARTMENT OF LABOR; UNITED STATES DEPARTMENT OF LABOR, Defendants-Appellees
from the United States District Court for the Northern
District of Texas
STEWART, Chief Judge, and JONES and CLEMENT, Circuit Judges.
H. JONES, Circuit Judge.
business groups 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
district court rejected all of these challenges. Finding
merit in several of these objections, we VACATE the Rule.
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.
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).
Title II created tax-deferred personal IRAs and similar
accounts within the Internal Revenue Code. 26 U.S.C. §
4975(e)(1)(B). 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.
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. §
• "has any discretionary authority or discretionary
responsibility in the administration of such plan." 29
U.S.C. § 1002(21)(A)(iii).
ii of the "fiduciary" definition is in issue here.
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. §
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)
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].
of Fiduciary, 81 Fed. Reg. at 20946, 20953 (Apr. 8, 2015) (to
be codified at 29 C.F.R. pts. 2509, 2510, 2550).
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.
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.
THE FIDUCIARY RULE
the relevant highlights of the Fiduciary Rule. 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).
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.
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.
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). 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.
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
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.
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.
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.
district court rejected all of the appellants' challenges
to the Fiduciary Rule. Timely appeals were filed.
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)?
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
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).
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
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
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
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).
The Common Law Presumptively Applies
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
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.
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.
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." 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.
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").
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
Displacement of the Presumption?
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."
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.
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 ...