![Global rules on foreign direct investment](https://www.nortonrosefulbright.com/-/media/images/nrf/nrfweb/knowledge/publications/us_24355_legal-update--fdi-alert.jpeg?w=265&revision=a5124a65-abf9-40e4-8e96-9df39ffdb212&revision=5250068427347387904&hash=96B456347C3246E5649838DF281C5F5D)
Publication
Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Authors:
United States | Publication | agosto 2024
On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al., (“Federation of Americans”) the United States District Court for the Eastern District of Texas issued an order staying the effective date of the DOL’s final fiduciary rule (and related amendments to PTE 84-14) that was issued in March 2024 (the Final Rule).
The Final Rule, which we previously summarized in our legal update, "The DOL's final fiduciary rule expands the scope of investment advice subject to ERISA," expands the definition of an “investment advice fiduciary” with respect to employee benefit plans and IRAs for purposes of determining who is a “fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (ERISA) and imposes ERISA’s fiduciary protections on many types of investment advisory relationships that were exempted under the DOL’s previous regulatory definition of “investment advice fiduciary,” which has been the standard since 1975. The District Court, in part relying on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo, found that the plaintiffs (primarily insurance agents) were likely to succeed on their arguments that the Final Rule improperly expanded the definition of an “investment advice fiduciary” under ERISA. As a result, the Final Rule’s original effective date of September 23, 2024 has been delayed until further notice.
In addition, on July 26, 2024, in a companion case to Federation of Americans filed in the United States District Court for the Northern District of Texas, the effectiveness of the remaining PTE amendments included in the Final Rule (to PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128) that were not challenged in Federation of Americans were also stayed, with the Northern District noting it that fully agreed with the Eastern District’s analysis and decision staying the effective date of the Final Rule.
In Federation of Americans, the plaintiffs challenged the Final Rule’s revised definition of the term “investment advice fiduciary” under ERISA. The plaintiffs, primarily insurance agents, argued that the rule improperly expanded the definition of fiduciary to include insurance agents who comply with state insurance laws when advising clients on rolling over retirement investments from employer-provided plans to IRAs. They contended that this expansion would impose significant compliance burdens and potential liabilities under ERISA. The plaintiffs sought a stay of the Final Rule’s September 23, 2024 effective date, or alternatively, a preliminary injunction while the case proceeds.
The Eastern District granted plaintiff’s motion to stay the Final Rule, finding that the plaintiffs were likely to succeed on the merits of their claim. The Eastern District reasoned that, like the 2016 fiduciary rule set forth by the DOL that was overturned by the Fifth Circuit in Chamber of Commerce v. US Dep’t of Labor, the Final Rule conflicts with ERISA in several ways: (i) treats as fiduciaries those who engaged in one-time recommendations to roll over assets from an ERISA plan to an IRA (ii) Final Rule is overbroad, like the DOL’s 2016 fiduciary rule, capturing transactions that would not otherwise be encompassed by ERISA (iii) ERISA applies to fees collected for investment advice rendered, not for sales, but that the Final Rule would capture those collecting a fee or other compensation for sales and (iv) the Final Rule gives Title I ERISA protections to IRA service providers where ERISA is clear that such service providers receive Title II protections.
Furthermore, the Eastern District gave little to no deference to the DOL interpretive authority, and cited the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overturned Chevron v. EPA, for the principle that a court should no longer defer to an agency’s interpretation of a statute but should decide for itself whether the law means what the agency says. Therefore, in staying the Final Rule, the Eastern District looked to the plain text of ERISA and the Fifth Circuit’s decision in Chamber of Commerce v. Dep’t of Labor that overturned the DOL’s 2016 fiduciary rule.
A day later, the Northern District of Texas, in American Council of Life Insurers, et al. v. United States Dep’t of Labor, et al., a companion case to Federation of Americans, agreed with and fully incorporated the Eastern District’s analysis with respect to the Final Rule, and took the additional step of staying the effectiveness of amendments to PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128.
The DOL is expected to appeal both rulings to the Fifth Circuit Court of Appeals, and the appeal process will likely involve further legal scrutiny and could potentially reach higher courts, including the US Supreme Court. In light of these tandem decisions, financial firms and professionals may want to consider the following:
Appeals of these decisions are likely to take some time, and the matters may end up at the US Supreme Court – consequently, barring some type of interim order by the Fifth Circuit Court of Appeals reversing these decisions and reinstating the Final Rule, a “pause” of further implementation of policies and procedures around the Final Rule is appropriate.
The outcome of the upcoming presidential election remains an uncertainty, with further uncertainty regarding the direction of the DOL in a new administration. Even if the DOL appeals these decisions, it is possible that a new administration may take action to either modify, or render moot, the Final Rule.
Securities professionals already are required to adhere to a fiduciary standard or Regulation Best Interest at the federal level, and many states have a similar standards of care. Consequently, these professionals likely already have many of the necessary structures and processes in place, and should confirm that they will be ready to quickly pivot to applying the standard of care under the Final Rule should it be reinstated.
Insurance professionals would seemingly have the most distance to cover in the event that the Final Rule was reinstated by the Fifth Circuit Court of Appeals. However, a “pause” for these professionals also is appropriate for the following reasons: (1) most insurance companies and professionals have already made great strides in preparation for compliance with the Final Rule in September 2024, and (2) many states already have “best interest” standards of care governing insurance transactions so, again, many impacted insurance parties could pivot to applying to any enhance standard of care required by a reinstatement of the Final Rule.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Publication
Artificial intelligence (AI) raises many intellectual property (IP) issues.
Publication
We are delighted to announce that Al Hounsell, Director of Strategic Innovation & Legal Design based in our Toronto office, has been named 'Innovative Leader of the Year' at the International Legal Technology Association (ILTA) Awards.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023