A U.S. federal judge on Wednesday upheld an Obama-era rule designed to avoid conflicts of interests when brokers give retirement advice, in a possible setback for President Donald Trump's efforts to scale back government regulation.
The stinging 81-page ruling comes just days after Trump ordered the Labor Department to review the "fiduciary" rule — a move widely interpreted as an effort to delay or kill the regulation.
The decision by Chief Judge Barbara Lynn for the U.S. District Court for the Northern District of Texas is a stunning defeat for the business and financial services industry groups that had sought to overturn it.
And while it is not expected to stop the Labor Department from delaying the rule's April 10 compliance deadline while it conducts the review, some legal experts say it could make it more difficult for the Labor Department to find a way to justify scrapping or significantly altering the rule.
This marks the second time now a federal district court has upheld the fiduciary rule. A third court, meanwhile, rejected an effort to stay the rule's implementation.
"Three courts have now carefully considered the full range of industry attacks on the DOL's best interest fiduciary rule, and they have firmly rejected all of them," said Stephen Hall, the legal director of Better Markets, a non-profit group that supports the rule.
"The decision issued today is definitive and sends a message that ought to put a stake through the heart of industry's efforts to destroy this common-sense rule."
The Labor Department's "fiduciary" rule requires brokers to put their clients' best interests first when advising them about individual retirement accounts or 401(k) retirement plans.
It is championed by consumer advocates and retirement non-profit groups, but has been staunchly opposed by the financial services sector, which argues it will make retirement advice too costly and harm lower-income retirees in particular.
The long list of groups that sued the Labor Department in the Dallas federal court include the U.S. Chamber of Commerce, the Financial Services Institute, the Financial Services Roundtable, the Insured Retirement Institute and the Securities Industry and Financial Markets Association.
In a joint statement, those groups said they disagreed with the judge's ruling and vowed to "pursue all of our available options to see that this rule is rescinded."
The decision in the Labor Department's favor came just a few hours after the Justice Department had petitioned the court to stay issuing a ruling because of the Feb. 3 White House request to review the rule to determine if it should be revised or scrapped.
Lynn, who was appointed to the bench by former President Bill Clinton, denied that request shortly after her ruling was filed.
"The Department of Labor is continuing to follow the president's memorandum and is exploring options to delay the applicability date," Labor Department spokeswoman Jillian Rogers said in a statement.
Sweeping legal arguments rejected
Wednesday's ruling represents a setback for Gibson Dunn & Crutcher attorney Eugene Scalia, who represented the business groups and has a strong track record for winning legal challenges to kill off unwanted Wall Street regulations.
The decision addressed a sweeping series of legal arguments that Gibson Dunn's attorneys made against the rule, including claims that the Labor Department had exceeded its legal authority and that it had violated federal rulemaking procedures by failing to conduct an adequate cost-benefit analysis to help justify the regulation.
"The court finds the DOL adequately weighed the monetary and non-monetary costs on the industry of complying with the rules, against the benefits to consumers," Lynn wrote.
"In doing so, the DOL conducted a reasonable cost-benefit analysis."
Lynn also rejected other arguments, including claims that the rule violated free speech rights of brokers and that the rule violated federal laws governing arbitration.
The case could still be appealed to a higher court.
Meanwhile, there are still several other pending legal challenges to the rule.