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2nd Voice Weighs in on 1st Amendment Challenge to Fiduciary Rule

One of the more novel legal arguments opposing the fiduciary regulation has resurfaced in an amicus (friend of the court) filing.

Arguing on behalf of plaintiffs (including the Chamber of Commerce) in the U.S. Court of Appeals for the Fifth Circuit, the Washington Legal Foundation (WLF), a nonprofit law firm, filed the amicus brief in support of the First Amendment challenge that was one of the arguments made in the case. Just last month the plaintiffs in the case, including the U.S. Chamber of Commerce, the Financial Services Institute and the Securities Industry and Financial Markets Association (SIFMA), had asked for a ruling by Judge Barbara M.G. Lynn citing “…their urgent need for relief.” She responded with a resounding “no” — a not unexpected response considering her previous ruling in the case.

Indeed, in February, Judge Lynn dismissed the First Amendment claims brought by these parties, ruling that the groups waived this claim by failing to raise it during the Department of Labor’s (DOL) rulemaking process.

Amicus Filing

In its filing, the WLF says it devotes a “substantial portion of its resources to defending and promoting free enterprise, individual rights, limited government, and the rule of law,” and to that end has appeared in “numerous federal courts in cases raising First Amendment issues to support the free-speech rights of market participants.” As for its participation in this action, the WLF said it “believes that the decision below affords unacceptably broad deference to the Department of Labor’s decision to restrict truthful, non-misleading commercial speech,” and that while “DOL seeks to justify its content-based and discriminatory burdens on the basis that those burdens are aimed solely at professional conduct, not speech.” This is a position with which WLF said the district court agreed, arguing: “Appellants and their members may speak freely, so long as they recommend products that [in DOL’s view] are in a consumer’s best interest.” However, in the opinion of the WLF, citing a court precedent, “…[t]he First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.

“Such speech restrictions are subject to heightened First Amendment review, even when the speech in question is commercial in nature,” WLF wrote, going on to note that “by exempting DOL’s rule from any level of judicial scrutiny, the decision below — if allowed to stand — would render Appellants’ First Amendment rights a dead letter.”

WLF said that, “In justifying its holding, the district court relied on the ‘professional speech doctrine,’ which purportedly allows the government to ‘regulate a professional-client relationship’ with ‘at most, an incidental burden on speech’ — without running afoul of the First Amendment.”

In the amicus brief, they argued that the fiduciary rule is “deeply flawed for many reasons,” including that it improperly asserts regulatory authority over products and activities that are outside DOL’s jurisdiction in violation of the statutory limits Congress imposed on the agency, and also “…unlawfully abridges the protected speech of brokers, agents, and other insurance salespeople.”

The court’s “unduly harsh approach” — which found the First Amendment claim waived for litigation purposes because it wasn’t raised during the regulatory process — was contrary not only to U.S. Supreme Court precedent, but “considerations of basic fairness,” the WLF said.

“Not only has the Supreme Court never recognized a separate First Amendment category for so-called professional speech, but it has consistently rejected any constitutional distinction between speech to the general public and speech to a particular person or group that somehow deprives the latter category of any meaningful First Amendment protection,” WLF commented, going on to state that distinguishing between “professional” speech and ordinary speech is itself an impermissible content-based distinction.

“The district court did not analyze whether an important governmental interest exists, nor did it seriously examine the extent to which Appellants’ speech is burdened by the Fiduciary Rule’s onerous requirements,” WLF wrote. “Instead, it merely assumed that any burden must be incidental because the rule is directed at conduct, and that any speech related to that conduct is ‘professional’ in nature.”

Furthermore, WLF noted that in “holding that the Fiduciary Rule does not run afoul of the First Amendment, the district court concluded that the rule does not regulate speech at all. Rather, the district court explained, the rule merely regulates ‘the conduct of receiving a commission’ by those who are deemed to be engaged in professional speech as fiduciaries.” In WLF’s assessment, “[t]he district court’s rationale leaves much to be desired.”

We shall see.