IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF … · 2016. 12. 23. · MDRP. CASE...

$Page 1: IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF … · 2016. 12. 23. · MDRP. CASE 0:16-cv-03289-SRN-HB Document 37 Filed 12/23/16 Page 8 of 21. 5 28996969\1 arbitration$
IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MINNESOTA

THRIVENT FINANCIAL

FOR LUTHERANS,

Plaintiff,

v.

THOMAS E. PEREZ, sued in his official

capacity, Secretary, United States

Department of Labor, and UNITED

STATES DEPARTMENT OF LABOR,

Defendants.

Case No. 0:16-cv-03289

REPLY MEMORANDUM IN

SUPPORT OF PLAINTIFF’S

MOTION FOR SUMMARY

JUDGMENT AND OPPOSITION TO

DEFENDANTS’ CROSS-MOTION

FOR SUMMARY JUDGMENT

CASE 0:16-cv-03289-SRN-HB Document 37 Filed 12/23/16 Page 1 of 21

i

TABLE OF CONTENTS

Page

INTRODUCTION ............................................................................................................... 1

ARGUMENT ....................................................................................................................... 2

I. DOL MISCHARACTERIZES THE BIC EXEMPTION’S IMPACT ON

THRIVENT .................................................................................................................. 2

II. THE FAA LIMITS DOL’S AUTHORITY TO DISCRIMINATE AGAINST

ARBITRATION ........................................................................................................... 4

A. The FAA Protects The Validity, Irrevocability, And Enforceability Of

Arbitration Agreements And Precludes Rules That Discriminate Against

Arbitration ..................................................................................................... 5

1. Courts Interpreting The FAA Have Made Clear That Laws And

Regulations That Discriminate Against Arbitration Are Invalid

Under The FAA .............................................................................. 6

2. The FAA’s Antidiscrimination Principles Apply To Federal

Agencies’ Regulatory Authority .................................................... 8

B. DOL Has No Statutory Authority To Discriminate Against Arbitration .... 11

III. THE BIC EXEMPTION’S CLASS ACTION CONDITION IMPERMISSIBLY

DISCRIMINATES AGAINST THRIVENT’S ARBITRATION BYLAW .............. 14

CONCLUSION ................................................................................................................. 16


ii

TABLE OF AUTHORITIES

Page(s)

Cases

Alden v. Maine,

527 U.S. 706 (1999) ....................................................................................................... 8

American Health Care Association v. Burwell,

__ F. Supp. 3d __, 2016 WL 6585295 (N.D. Miss. Nov. 7, 2016) .......................... 9–10

Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc.,

847 F.2d 475 (8th Cir. 1988) ........................................................................... 11, 12, 13

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011) .............................................................................................. passim

Cellular Sales of Missouri, LLC v. National Labor Relations Board (NLRB),

824 F.3d 772 (8th Cir. 2016) ......................................................................................... 9

City of Arlington v. Federal Communications Commission (F.C.C.),

133 S. Ct. 1863 (2013) ............................................................................................... 8–9

D.R. Horton, Inc. v. National Labor Relations Board (NLRB),

737 F.3d 344 (5th Cir. 2013) ................................................................................... 9, 14

Danforth v. Minnesota,

552 U.S. 264 (2008) ....................................................................................................... 8

Doctor’s Associates, Inc. v. Casarotto,

517 U.S. 681 (1996) ....................................................................................................... 6

Duncan v. Walker,

533 U.S. 167 (2001) ....................................................................................................... 5

Equal Employment Opportunity Commission (EEOC) v. Waffle House, Inc.,

534 U.S. 279 (2002) ............................................................................................... 10, 11

Faber v. Menard, Inc.,

367 F.3d 1048 (8th Cir. 2004) ....................................................................................... 8

Franke v. Poly-America Medical & Dental Benefits Plan,

555 F.3d 656 (8th Cir. 2009) ....................................................................................... 11


iii

Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20 (1991) ................................................................................................. 12, 13

Johnson v. Fankell,

520 U.S. 911 (1997) ....................................................................................................... 8

Owen v. Bristol Care, Inc.,

702 F.3d 1050 (8th Cir. 2013) ................................................................................. 9, 12

Preston v. Ferrer,

552 U.S. 346 (2008) ....................................................................................................... 7

Satcher v. University of Arkansas at Pine Bluff Board of Trustees,

558 F.3d 731 (8th Cir. 2009) ......................................................................................... 2

Shearson/American Express, Inc. v. McMahon,

482 U.S. 220 (1987) ..................................................................................................... 13

Walton v. Rose Mobile Homes LLC,

298 F.3d 470 (5th Cir. 2002) ....................................................................................... 13

Statutes

9 U.S.C. § 2 ..................................................................................................................... 3, 5

26 U.S.C. § 4975 ............................................................................................................... 14

Other Authority

Chamber of Commerce v. Perez,

No. 3:16-01476-M (N.D. Tex.) .................................................................................... 12


1

INTRODUCTION

The new substantive protections provided to IRA investors through DOL’s New

Rule and the BIC Exemption are not challenged by Thrivent in this litigation. The only

question here is whether DOL can implement an anti-arbitration condition as a

component of the BIC Exemption. As a result, DOL’s extensive recitation in its brief

(“Opposition”) of the reasons why it adopted the New Rule and the BIC Exemption, and

DOL’s views about what information should be provided to IRA investors, are entirely

irrelevant to the resolution of this motion.

What is relevant here are three established points: (1) the BIC Exemption

discourages (indeed, prohibits) Thrivent from continuing to require that IRA customer

disputes be resolved by a process that culminates in individual arbitration; (2) rules

discouraging individual arbitration (by requiring class actions) violate the FAA because

they “interfere with the fundamental attributes of arbitration”; and (3) in enacting ERISA,

Congress did not intend to preclude arbitration and require disputes be resolved in a

judicial forum.

Ignoring Supreme Court and Eighth Circuit precedent, DOL nonetheless argues

that the FAA places no constraints on its power under ERISA to adopt rules that interfere

with arbitration. DOL is simply wrong. The Eighth Circuit has held that the FAA restricts

federal agencies from regulating in a manner hostile to arbitration absent express

statutory authority, just as surely as the FAA preempts state laws that are hostile to

arbitration. DOL’s argument that ERISA’s general purpose to protect retirement

investors somehow contravenes Congress’s specific intent to prohibit anti-arbitration


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discrimination has also been squarely rejected by the Eighth Circuit, and is just a back-

door effort by DOL to re-litigate binding precedent. Far from establishing that DOL can

override Congress’s intent, the Opposition confirms that DOL simply disagrees with

Congress’s pro-arbitration policy and seeks to substitute DOL’s own judgment for that of

Congress.

DOL therefore exceeded its authority under the APA in adopting the BIC

Exemption’s anti-arbitration condition. That invalid condition should be severed from the

BIC Exemption.1

ARGUMENT

I. DOL MISCHARACTERIZES THE BIC EXEMPTION’S IMPACT ON

THRIVENT

At the outset, certain factual assertions in the Opposition warrant attention.

First, DOL contends that the BIC Exemption does not implicate the enforceability

of arbitration agreements and “has no effect on existing contracts.” (Opp. at 23.) This is

incorrect. DOL does not dispute that Thrivent has no choice but to use the BIC

Exemption or incur excise taxes. Indeed, the Opposition does not even address Thrivent’s

assertion that “in order to continue to function as a fraternal benefit society that sells

proprietary life insurance products to its members, Thrivent has no choice but to avail

itself of the BIC Exemption.” Thrivent’s Opening Memorandum (“Mem.”) at 26. DOL

1

DOL agrees that severance is the appropriate remedy if the anti-arbitration condition

is deemed invalid. (Opp. at 17 n.14.)


3 28996969\1

thus concedes2 that Thrivent cannot continue to sell its full suite of insurance products to

its members with IRA accounts and yet “refrain from engaging in prohibited

transactions.” AR100.

In order to receive relief under the BIC Exemption, Thrivent must provide existing

members who have IRAs with advance notice of and bind itself to the new BIC terms,

including the class action requirement.3 (Mem. at 13‒14.) As a consequence, members

who are currently bound by the MDRP and have agreed to arbitrate disputes individually

would then be subject to a BIC. This would have the effect of revoking existing

arbitration agreements and allowing such members to pursue judicial class actions against

Thrivent. The FAA’s plain language prohibits rules that invalidate, revoke, or render

unenforceable agreements to arbitrate. 9 U.S.C. § 2. For this reason alone, the anti-

arbitration condition of the BIC Exemption is invalid.

Second, DOL oddly mocks Thrivent’s commitment to its MDRP as a core

component of its governance structure as a member-governed fraternal benefit society,

asserting that “the MDRP is already littered with exceptions.” (Opp. at 29‒30.) Of

course, the existence of Thrivent’s MDRP Bylaw is uncontroverted, and the question

before this Court is simply whether the anti-arbitration condition of the BIC Exemption

2 See Satcher v. Univ. of Ark. at Pine Bluff Bd. of Trustees, 558 F.3d 731, 735 (8th Cir.

2009) (“[F]ailure to oppose a basis for summary judgment constitutes waiver of that

argument.”).

3 Although DOL apparently refers to “grandfathering relief” in connection with existing

investment advice “to continue to adhere to a systematic purchase program,” other advice

to existing IRA customers—such as “recommending additional investments” in

connection with an existing account—will be fully subject to the New Rule. AR121‒22.


4 28996969\1

exceeds DOL’s authority. While DOL’s assertion is therefore irrelevant, it is also

factually inaccurate. The very document on which DOL relies states that the MDRP

applies to “all disputes involving insurance and/or annuity products issued and sold by

Thrivent Financial for Lutherans and its predecessors.” (Newton Decl. Ex. G at 2.) The

MDRP thus uniformly covers over two million insurance products (with death benefits

exceeding $180 billion) issued and sold by Thrivent. (Response Declaration of Paul

Johnston ¶3.) Although certain financial products like credit union products and mutual

funds sold by non-party affiliates (such as Thrivent Investment Management, Inc.) may

not be subject to the MDRP (Opp. at 30) as those entities are not subject to Thrivent’s

Bylaws, that in no way diminishes Thrivent’s commitment to the MDRP as a fraternal

benefit society.4

II. THE FAA LIMITS DOL’S AUTHORITY TO DISCRIMINATE AGAINST

ARBITRATION

The FAA: (1) prohibits rules or laws that discriminate against arbitration by, inter

alia, categorically “disfavoring” arbitration or otherwise “interfering with fundamental

attributes of arbitration” and thus the ability to agree to resolve disputes through

arbitration, (Mem. at 17‒18 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333,

344 (2011))); and (2) preempts laws or regulations (such as the BIC Exemption) that

require the availability of class action proceedings and purport to invalidate contrary

4 DOL’s reliance on a report from Thrivent Series Fund, Inc., stating that “Thrivent

accounts for class action awards” (Opp. at 30), is also misplaced. The quoted statement

manifestly relates to awards received by Thrivent mutual funds, which might find

themselves as class members in class action litigation. This has nothing to do with the

MDRP.


5 28996969\1

arbitration provisions. (Mem. at 19‒20.)

The Opposition takes a narrow view that the FAA requires only that existing

arbitration agreements—once executed—must be enforced by their terms. DOL contends

it is perfectly acceptable for a federal agency to prohibit execution of such agreements in

the first instance under threat of “disincentives” in the form of punitive excise taxes.

(Opp. at 21‒25.) In so arguing, DOL ignores the overwhelming body of case law holding

that agencies and states may not discriminate against arbitration provisions in the absence

of a clear congressional command empowering them to do so. And it ignores Supreme

Court precedent that prohibits procedures that “disfavor[ ] arbitration” and recognizes

that it is “beyond dispute that the FAA was designed to promote arbitration.” See

Concepcion, 563 U.S. at 341, 345.

A. The FAA Protects The Validity, Irrevocability, And Enforceability Of

Arbitration Agreements And Precludes Rules That Discriminate

Against Arbitration

DOL purports to adopt a narrow “textual” reading of the FAA, where the FAA

requires “only that arbitration provisions in contracts be enforced.” (Opp. at 21.) In

support of its reading, DOL asserts that judicial precedent applying the FAA has been

limited to enforcement of arbitration agreements.

But the plain language of the FAA is not confined to the “enforceability” of

arbitration agreements, as DOL contends. Rather, section 2 specifies that contractual

arbitration agreements shall not only be “enforceable,” they shall also be “valid” and


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“irrevocable.” 9 U.S.C. § 2. Each of these terms must be given meaning.5 See Duncan v.

Walker, 533 U.S. 167, 174 (2001) (“It is our duty to give effect, if possible, to every

clause and word of a statute.” (internal quotation omitted)). And the case law

overwhelmingly demonstrates that courts must invalidate state statutes and agency rules

that discriminate against or otherwise interfere with arbitration as a means to resolve

disputes.

1. Courts Interpreting The FAA Have Made Clear That Laws And

Regulations That Discriminate Against Arbitration Are Invalid

Under The FAA

The Supreme Court has provided clear guidance on the FAA’s scope and meaning.

In Concepcion, the Court held that California’s Discover Bank rule, requiring the

availability of class action procedures, was preempted by the FAA because it

discouraged companies from employing arbitration agreements—and thus “interfere[d]

with” the validity of arbitration agreements. 563 U.S. at 346. Specifically, the Court

found that, although “consumers remain[ed] free” to arbitrate claims bilaterally under the

Discover Bank rule, companies nevertheless “would have less incentive to continue

resolving” claims through arbitration. Id. at 346‒48. Concerned about this discriminatory

impact on arbitration, the Court struck down the rule as improperly interfering with the

validity of bilateral arbitration agreements. Id. Thus, Concepcion held that the FAA does

more than simply ensure the judicial enforcement of existing agreements to arbitrate; it

5 DOL’s focus on “enforceability” also glosses over the fact that the BIC Exemption’s

anti-arbitration condition would invalidate and cause Thrivent to “revoke” its existing

agreements to arbitrate on an individual basis in connection with its members’ IRAs.

(Supra at 2–3.)


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invalidates rules that disincentivize agreements to arbitrate.

Concepcion is no outlier. For example, in Doctor’s Associates, Inc. v. Casarotto,

the Court held that a Montana law requiring that all arbitration provisions be typed in

capital letters and underlined on the first page of a contract was preempted by the FAA.

517 U.S. 681 (1996). Because the state law discriminated against arbitration agreements

by “plac[ing them] in a class apart from ‘any contract,’ and singularly limit[ing] their

validity,” the law was preempted by the FAA—separate and apart from whether the

specific arbitration provision at issue was found to be enforceable under the FAA. Id. at

688. Similarly, in Preston v. Ferrer, the Court held that the FAA preempted a California

law requiring an initial reference of the parties’ dispute to the California Labor

Commissioner before arbitration could commence, because it “impose[d] prerequisites to

enforcement of an arbitration agreement,” and a “prime objective of an agreement to

arbitrate [ ] to achieve streamlined proceedings and expeditious results … would be

frustrated,” even if the arbitration agreement could ultimately be enforced. 552 U.S. 346,

356‒58 (2008) (quotations omitted).

Against the weight of this precedent, DOL argues that Concepcion and similar

cases from the Supreme Court and other courts simply mean that existing arbitration

agreements must be enforced. But that exact contention was expressly advanced by the

dissent in Concepcion, see 563 U.S. at 359‒61 (Breyer, J., dissenting), and rejected by

the majority, see id. at 344‒46. DOL may disagree with Concepcion, but its interpretation

of the FAA is binding in this Court.

Also contrary to DOL’s argument that the FAA’s scope is limited to ensuring the


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enforceability of arbitration agreements in court, DOL in fact elsewhere concedes that the

FAA’s “savings clause does not preserve” (1) “state law rules that stand as an obstacle to

the accomplishment of the FAA’s objectives,” or (2) “a provision that interferes with

fundamental attributes of arbitration and thus creates a scheme inconsistent with the

FAA.” (Opp. at 26 (quoting Concepcion) (internal quotes omitted).) Clearly, these

principles extend beyond simply ensuring that arbitration agreements be enforced in

court; they support the conclusion that the FAA invalidates rules that discriminate against

arbitration.

2. The FAA’s Antidiscrimination Principles Apply To Federal

Agencies’ Regulatory Authority

DOL next argues that the FAA’s antidiscrimination principles articulated in

Concepcion apply only in the context of preempting state laws that discriminate against

arbitration. (Opp. at 26 (“Concepcion ultimately rested on conflict-preemption principles

that apply where state laws cannot be reconciled with federal law.”); Opp. at 28 n.20 (the

BIC Exemption “is not a state law for which the broader sweep of preemption principles

apply”).) This is a surprising argument for DOL to assert in view of our federal system,

and it is contrary to well-established precedent.

As a preliminary matter, DOL’s argument is nonsensical against the backdrop of

federalism. Unlike federal agencies, which receive their power from Congress, states are

“independent sovereigns with plenary authority to make and enforce their own laws.”

Danforth v. Minnesota, 552 U.S. 264, 280 (2008). Federalism requires that states are

treated “in a manner consistent with their status as residuary sovereigns.” Alden v. Maine,


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527 U.S. 706, 748 (1999). Federalism concerns are especially important in the context of

federal preemption of state laws. Johnson v. Fankell, 520 U.S. 911, 922 (1997). Despite

those federalism concerns, the FAA nevertheless “preempts all state laws that reflect a

policy disfavoring arbitration and which are designed specifically to limit arbitration.”

Faber v. Menard, Inc., 367 F.3d 1048, 1052 (8th Cir. 2004).

If anything, the bar is higher for an Act of Congress to preempt a state law than to

override a federal agency rule. Federal agencies are creatures of Congress, and they have

“literally … no power to act unless and until Congress confers power upon it.” City of

Arlington v. F.C.C., 133 S. Ct. 1863, 1880 (2013) (ellipses, quotations omitted). There

are no special federalism concerns implicated by federal agencies because they are not

sovereigns. DOL’s unsupported assertion—that it may disfavor arbitration even without

express congressional authority, but states are preempted from doing so—would turn

principles of federalism on their head.

In any case, DOL’s argument has been squarely rejected by the Eighth Circuit. In

Cellular Sales v. NLRB, the Eighth Circuit held that the National Labor Relations Board

could not use its regulatory authority under the NLRA to discriminate against arbitration

by (1) requiring an employer to “rescind” or “revise” an arbitration agreement that

required employees to resolve claims in arbitration on an individual basis, or (2)

declaring it to be an unfair labor practice for an employer to require employees to enter

into individual arbitration agreements. 824 F.3d 772, 775‒77 (8th Cir. 2016). In so doing,

the Eighth Circuit relied on its earlier holding in Owen v. Bristol Care, Inc., 702 F.3d

1050 (8th Cir. 2013), which enforced an agreement to arbitrate on an individual basis an


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employee’s claims arising under the Fair Labor Standards Act, because “the FLSA

contains no ‘contrary congressional command’ as required to override the FAA.” 702

F.3d at 1052.

Similarly, in D.R. Horton v. NLRB, 737 F.3d 344, 358 (5th Cir. 2013), the Fifth

Circuit held that the NLRB had exceeded its authority in declaring that an employer had

committed an unfair labor practice by requiring individual arbitration, and in ordering the

employer to “rescind or revise the agreement to clarify that employees were not …

prohibited from resolving employment-related claims collectively or as a class.” Id. at

349, 362. See also American Health Care Ass’n v. Burwell, __ F. Supp. 3d __, 2016 WL

6585295 (N.D. Miss. Nov. 7, 2016) (FAA precludes Department of Health and Human

Services from adopting a regulation prohibiting arbitration agreements in nursing home

contracts).

Thus, contrary to DOL’s assertion, Thrivent does not seek any “expansion of FAA

jurisprudence.” (Opp. at 24.) The case law is entirely clear that a federal agency—like a

state—cannot adopt rules that discriminate against arbitration, in the absence of an

express congressional command permitting it to do so. And it is undisputed that the BIC

Exemption’s anti-arbitration condition will result in the imposition of an excise tax on

Thrivent solely because the MDRP requires individual arbitration. Thus, DOL is doing

here exactly what the Eighth Circuit held that the NLRB was prohibited from doing under

the FAA—attempting to rely on general statutory authority as the basis for discriminating

against arbitration by requiring that agreements with individual arbitration provisions be

rescinded or revised to allow for judicial class actions, and effectively prohibiting such


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agreements from being entered into. The Eighth Circuit has thus already held that the

FAA constrains the authority of federal agencies to discriminate against arbitration. The

Court should simply apply this precedent here.

B. DOL Has No Statutory Authority To Discriminate Against Arbitration

Notwithstanding the clear precedent holding that the FAA does limit a federal

agency’s ability to discriminate against arbitration, DOL asserts that the Supreme Court’s

decision in EEOC v. Waffle House stands for the broad proposition that the FAA does not

“trump an agency’s statutory authority.” (Opp. at 26.) But DOL plainly mischaracterizes

the holding of that case. Waffle House addressed whether an arbitration agreement

between an employer and an employee could limit the EEOC’s express statutory power

to bring its own enforcement action against the employer under the ADA. 534 U.S. 279,

283‒84, 290‒92 (2002). Because the EEOC was not a party to the arbitration

agreement—and therefore had not “agreed to arbitrate its claims”—the FAA did not

require the EEOC “to relinquish” the express statutory authority conferred upon it by

Congress to pursue its own enforcement action where “it has not agreed to do so.” Id. at

294. DOL concedes that it has no “statutory authority” to bring an enforcement action on

its own under Title II of ERISA, and thus Waffle House is plainly inapposite. (Opp. at 4,

5; see also Mem. at 9; AR77.)

In stark contrast to Waffle House, the “statutory authority” on which DOL relies to

empower it to interfere with arbitration is not any specific congressional authorization in

ERISA, but rather, ERISA’s general purpose to protect “the interests of retirement

investors.” (Opp. at 27.) But the Eighth Circuit has already rejected the argument that


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ERISA’s general purpose provides a basis to discriminate against arbitration. See Arnulfo

P. Sulit, Inc. v. Dean Witter Reynolds, 847 F.2d 475, 478–79 (8th Cir. 1988) (finding “no

congressional intent to single out ERISA claims for exemption from the general federal

policy favoring rigorous enforcement of agreements to arbitrate,” and concluding that

“we perceive no inherent conflict between arbitration of ERISA claims and the statute’s

purposes that would undermine the suitability of arbitration as a means of enforcing

ERISA rights”) (emphasis added); accord Franke v. Poly-America Med. & Dental

Benefits Plan, 555 F.3d 656 (8th Cir. 2009). ERISA’s general statutory authority does not

permit DOL to contravene the FAA.

DOL maintains that the “contrary congressional command” standard is not

implicated because there is no conflict between the FAA’s pro-arbitration policy and the

BIC Exemption’s anti-arbitration condition, adopted by DOL pursuant to ERISA’s

general purpose to protect retirement investors. (Opp. at 28.) But that simply begs the

question of DOL’s authority. DOL’s general authority under ERISA to protect retirement

investors might support its underlying regulatory power to adopt the substantive aspects

of the BIC Exemption—and Thrivent does not argue to the contrary.6 But ERISA’s

general purposes do not empower DOL to discriminate against arbitration in dictating the

forum in which disputes arising under the BIC Exemption might be resolved. Indeed, as

6 In this respect, it bears emphasis that the extent to which the FAA constrains DOL’s

regulatory authority is only raised (peripherally) in one of the five other cases referred to

by DOL (Opp. at 17‒18.) That case, in which the district court has not issued a ruling,

involves a trade association, and not, as here, a financial institution that currently requires

individual arbitration of disputes. Chamber of Commerce v. Perez, No. 3:16-cv-01476-M

(N.D. Tex.).


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both Owen and Sulit make clear, the “contrary congressional command” analysis already

considers whether there is an “inherent conflict between arbitration and the [statute’s]

underlying purposes.” Owen, 702 F.3d at 1051 (quoting Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 26 (1991)); Sulit, 847 F.2d at 478.

Accordingly, the applicable test to determine whether Congress has empowered a

federal agency to regulate in a manner that discriminates against arbitration (and thus

contradict the FAA) is the “contrary congressional command” test, as Thrivent discussed.

(Mem. at 27‒29.) And DOL cites to nothing—nor could it—to support its argument that

federal agencies may freely discriminate against arbitration agreements where Congress

has expressed no intention to that effect.

Lacking any command in ERISA (or any other statute) that would override the

FAA, DOL instead tries to reargue the question resolved in Sulit by raising several policy

reasons why it desires the availability of class actions. (Opp. at 16‒17.) DOL’s assertions

are nothing more than admissions of its hostility towards arbitration, and none of DOL’s

policy justifications qualify as a contrary congressional command in ERISA.7 In any

event, courts have long rejected identical arguments based on the supposed inadequacy of

arbitration procedures. For example in Gilmer, the Supreme Court acknowledged that the

7 To be clear, DOL’s regulations may not themselves constitute the requisite contrary

congressional command overriding the FAA, nor may DOL’s regulations be used to

determine that Congress intended ERISA to override the FAA. See Walton v. Rose

Mobile Homes LLC, 298 F.3d 470, 476, 479 (5th Cir. 2002) (holding that the Magnuson-

Moss Warranty Act did not “evince a congressional intent to prevent the use of binding

arbitration” contrary to the FAA, despite Federal Trade Commission regulations

prohibiting binding arbitration, and explaining that it “is improper to use the FTC

regulations themselves to determine congressional intent” for purposes of this analysis).


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ADEA was designed to “further important social policies,” but reasoned that “[w]e do not

perceive any inherent inconsistency between those policies, however, and enforcing

agreements to arbitrate age discrimination claims.… Both of these dispute resolution

mechanisms[,] [litigation in court and arbitration,] can further broader social purposes.”

500 U.S. 20, 27‒28, 30‒32 (also rejecting argument that “arbitration procedures cannot

adequately further the purposes of the ADEA because they do not provide for … class

actions.”); see also Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 238‒41

(1987) (rejecting argument that RICO claims were non-arbitrable because of an

“irreconcilable conflict between arbitration and RICO’s underlying purposes”); D.R.

Horton, 737 F.3d at 360 (rejecting argument that the “general thrust” of the NLRA

constitutes a contrary congressional command).8

Even if DOL had good reasons for its hostility towards arbitration—and it does

not, at least with respect to Thrivent’s MDRP—this cannot serve as a basis to affirm a

rule that discriminates against arbitration and substitutes DOL’s judgment for that of

Congress.

III. THE BIC EXEMPTION’S CLASS ACTION CONDITION

IMPERMISSIBLY DISCRIMINATES AGAINST THRIVENT’S

ARBITRATION BYLAW

At bottom, DOL is left arguing that the BIC Exemption’s anti-arbitration condition

does not violate the FAA (and thus exceed DOL’s powers under the APA) because

8 DOL also argues that its desire to achieve consistency with the arbitration approach

for broker-dealers who are self-regulated by the Financial Industry Regulatory Authority,

Inc. (“FINRA”), should support DOL’s ability to discriminate against arbitration. (Opp.

at 16.) But FINRA cannot expand DOL’s authority to impose a rule “inconsistent with

the FAA, even if it is desirable for unrelated reasons.” Concepcion, 563 U.S. at 351.


15 28996969\1

Thrivent has a voluntary choice to maintain its MDRP and face a 115% excise tax on

every prohibited transaction. 26 U.S.C. § 4975; AR43. Any notion that Thrivent has a

voluntary choice in this regard is absurd on its face. To avoid the 115% excise tax,

DOL’s discriminatory “incentive” would require Thrivent to revoke its arbitration

agreement as to existing IRAs, invalidating Thrivent’s ability to enforce its MDRP.

(Supra at 2–3.) And regardless whether Thrivent truly has a choice, there is no

conceivable dispute that the BIC Exemption’s anti-arbitration condition creates a

disincentive against entering into agreements that require individual arbitration as the

sole means of resolving disputes. Choice or not, DOL’s anti-arbitration condition violates

the FAA because it interferes with the “fundamental attributes of arbitration” and

penalizes only those financial institutions who do not accept this condition. See

Concepcion, 563 U.S. at 344.

Nor does it help DOL to point out that the excise tax is itself a creature of statute.

(Opp. at 30–31.) While the excise tax is part of the statutory framework, only financial

institutions that do not accede to the regulation’s anti-arbitration condition will incur the

tax. Indeed, DOL could have decided not to adopt the BIC Exemption, in which case

every financial institution would be on an equal footing, regardless of whether their

customer agreements require individual arbitration. But DOL took a different route, using

the BIC Exemption as a means of discouraging arbitration. The penalty is part and parcel

of DOL’s regulatory framework in seeking to (1) require financial institutions to use the

BIC Exemption and (2) discourage individual arbitration. (Mem. at 27.)

As with any other rule that “stand[s] as an obstacle to the accomplishment of the


16 28996969\1

FAA’s objectives” favoring arbitration or that “interfere[s] with fundamental attributes of

arbitration,” this aspect of the BIC Exemption is invalid under the FAA. Concepcion, 563

U.S. at 344.

CONCLUSION

Congress has expressed a pro-arbitration policy in the FAA, and nothing in ERISA

empowers DOL to ignore and override Congress’s express judgment by adopting

regulations overtly hostile to arbitration. Because the BIC Exemption’s anti-arbitration

condition discriminates against and disfavors arbitration in violation of the FAA, DOL

has plainly exceeded its authority under the APA. Accordingly, the impermissible

condition must be severed from the BIC Exemption.

Respectfully submitted,

Dated: December 23, 2016 GREENE ESPEL PLLP

s/ Mark L. Johnson

Mark L. Johnson, Reg. No. 0345520

Christopher L. Schmitter, Reg. No. 0395916

222 S. Ninth Street, Suite 2200

Minneapolis, MN 55402

[email protected]

[email protected]

(612) 373-0830

- and -


17 28996969\1

COZEN O’CONNOR

Andrew B. Kay (pro hac vice)

1200 19th Street, NW

Washington, DC 20036

[email protected]

(202) 912-4800

Attorneys for Thrivent Financial for

Lutherans


IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MINNESOTA

THRIVENT FINANCIAL

FOR LUTHERANS,

Plaintiff,

v.

THOMAS E. PEREZ, sued in his official

capacity, Secretary, United States

Department of Labor, and UNITED

STATES DEPARTMENT OF LABOR,

Defendants.

Case No. 0:16-cv-03289-SRN-HB

LR 7.1(f) CERTIFICATE OF

COMPLIANCE

I, Mark L. Johnson, certify that the

Memorandum titled: Reply Memorandum in Support of Plaintiff’s

Motion for Summary Judgment and Opposition to Defendants’

Cross-Motion for Summary Judgment complies with Local Rule

7.1(f).

or

Objection or Response to the Magistrate Judge’s Ruling complies

with Local Rule 72.2(d).

I further certify that, in preparation of the above document, I:

Used the following word processing program and version: Microsoft

Word Version 2007 (using the Word 97-2003 file format) and that

this word processing program has been applied specifically to

include all text, including headings, footnotes, and quotations in the

following word count.

or

Counted the words in the document.

I further certify that the above document contains the following number of words:

4,156.

CASE 0:16-cv-03289-SRN-HB Document 37-1 Filed 12/23/16 Page 1 of 2

Dated: December 23, 2016 GREENE ESPEL PLLP

s/ Mark L. Johnson

Mark L. Johnson, Reg. No. 0345520

Christopher L. Schmitter, Reg. No. 0395916

222 S. Ninth Street, Suite 2200

Minneapolis, MN 55402

[email protected]

[email protected]

(612) 373-0830

- and -

COZEN O’CONNOR

Andrew B. Kay (pro hac vice)

1200 19th Street, NW

Washington, DC 20036

[email protected]

(202) 912-4800

Attorneys for Thrivent Financial for Lutherans

CASE 0:16-cv-03289-SRN-HB Document 37-1 Filed 12/23/16 Page 2 of 2

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