from the United States District Court for the District of
Kansas (D.C. No. 5:16-CV-04083-DDC-KGS)
F. Jorden (Brian P. Perryman of Carlton Fields Jorden Burt,
P.A., Washington, D.C.; Michael A. Valerio of Carlton Fields
Jorden Burt, P.A., Hartford, Connecticut; J. Michael Vaughan
of Walters Bender Strohbehn & Vaughan, P.C., Kansas City,
Missouri, with him on the briefs), for Plaintiff - Appellant.
Michael Shih (Michael S. Raab and Thais-Lyn Trayer, Civil
Division, U.S. Department of Justice; Hashim M. Mooppan,
Deputy Assistant Attorney General, Tom Beall, United States
Attorney; Of Counsel: Nicholas C. Geale, Acting Solicitor of
Labor, G. William Scott, Associate Solicitor, Edward D.
Sieger, Senior Attorney, Thomas Tso, Counsel for Appellate
Litigation, and Megan Hansen, Attorney for Regulations, U.S.
Department of Labor, Office of the Solicitor, with him on the
brief), Washington, D.C., for Defendants -Appellees.
Ellen Signorille and William Alvarado Rivera of AARP
Foundation Litigation, Washington, D.C. for Amici Curiae.
LUCERO, KELLY, and MATHESON, Circuit Judges.
Market Synergy Group appeals from the district court's
judgment in favor of Defendant-Appellee United States
Department of Labor. Having jurisdiction under 28 U.S.C.
§ 1291, we affirm.
case stems from the Department of Labor's (DOL) final
regulatory action on April 8, 2016, as it applies to fixed
indexed annuity (FIA) sales. See Amendment to and
Partial Revocation of Prohibited Transaction Exemption (PTE)
84-24 for Certain Transactions Involving Insurance Agents and
Brokers, Pension Consultants, Insurance Companies, and
Investment Company Principal Underwriters (Final PTE 84-24),
81 Fed. Reg. 21, 147 (Apr. 8, 2016) (to be codified at 29
C.F.R. pt. 2550). Plaintiff-Appellant Market Synergy Group
(MSG) is a licensed insurance agency that works with insurers
to develop specialized, proprietary FIAs and other insurance
products for exclusive distribution. It partners with
independent marketing organizations (IMOs) to distribute these
products. MSG does not directly sell FIAs but conducts market
research and provides training and products for IMO member
networks and the independent insurance agents that IMOs
recruit. Market Synergy and its 11 IMO network members had
$15 billion in FIA sales in 2015 and substantially all of
Market Synergy's revenues involve developing, marketing,
and distributing FIAs. Aplt. Br. at 7-8.
are investments, often for retirement, sold by financial
institutions including life insurers. An annuity involves a
promise to pay amounts on a regular basis for a set period of
time. Deferred annuities have a deferral or accumulation
phase where the contract accumulates value through premiums
paid and interest credited. The payout phase occurs when the
contract holder receives a set stream of payments, for
example, upon attaining a certain age. What that interest
will be during the deferred phase generally separates the
three types of annuities at issue in this case - fixed rate
(or fixed declared rate), fixed indexed, and
fixed rate annuity, the insurer guarantees a return of
principal and minimum crediting rate during the deferral or
accumulation phase. When the annuity reaches the payout
phase, minimum payments are based upon rates guaranteed at
issuance. In contrast, a variable annuity's return is not
guaranteed but rather based upon the returns or losses of the
underlying assets in which the funds are invested. Variable
annuities are securities.
indexed annuity falls somewhere in-between a fixed rate and
variable annuity. Like a fixed rate annuity, principal and
prior credited interest are protected from market downturns.
Like a variable annuity, however, the amount of interest
actually credited varies based on a market index the FIA is
tied to, such as the S&P 500 index. Unlike a variable
annuity though, FIAs are not actually invested in the market;
rather, the market index's performance is used simply as
a reference to determine the amount of interest credited. The
crediting rate for an FIA is never less than zero. FIAs, like
fixed rate annuities, generally are governed by state
insurance law and are exempt from federal securities law.
investor speaks with an insurance agent about buying an
annuity, that insurance agent will often give advice and
receive a commission for selling the annuity. This conduct is
governed under Title II of the Employee Retirement Income
Security Act (ERISA) and the Internal Revenue Code, which
broadly defines a fiduciary as someone who "renders
investment advice for a fee." 26 U.S.C. §
4975(e)(3)(B). These insurance agents selling annuities would
generally be classified as fiduciaries and therefore be
barred from receiving commissions; however, they are exempt
from that prohibition under a Department of Labor rule -
Prohibited Transaction Exemption (PTE) 84-24.
April 2015, the DOL issued a proposed rule redefining who is
a "fiduciary" of an employee benefit plan under
ERISA and the Internal Revenue Code, which would "update
existing rules to distinguish more appropriately between the
sorts of advice relationships that should be treated as
fiduciary in nature and those that should not." Proposed
Amendment to and Proposed Partial Revocation of Prohibited
Transaction Exemption (PTE) 84-24 for Certain Transactions
Involving Insurance Agents and Brokers, Pension Consultants,
Insurance Companies and Investment Company Principal
Underwriters (Proposed PTE 84-24), 80 Fed. Reg. 22, 010, 22,
011 (Apr. 20, 2015) (to be codified at 29 C.F.R. pt. 2550).
The final rule contained two changes important to this
case. First, it created a new exemption, with
added regulatory requirements, entitled the Best Interest
Contract Exemption (BICE). Much like PTE 84-24, the BICE
"would allow certain investment advice fiduciaries . . .
to receive . . . compensation." Proposed Best Interest
Contract Exemption (Proposed BICE), 80 Fed. Reg. 21, 960, 21,
961 (Apr. 20, 2015) (to be codified at 29 C.F.R pt. 2550).
The BICE, however, also imposes a more stringent set of
requirements on prohibited transactions than those required
under PTE 84-24. See Final Best Interest Contract
Exemption (Final BICE), 81 Fed. Reg. 21, 002, 21, 007 (Apr.
8, 2016) (to be codified at 29 C.F.R. pt. 2550).
the DOL removed FIAs (as well as variable annuities) from the
PTE 84-24 exemption and placed them in the newly created
BICE. Final PTE 84-24, 81 Fed. Reg. at 21, 152-53. Fixed rate
annuities, however, were kept within the PTE 84-24 exemption.
The DOL's stated reason for this change was because FIAs
(1) require the customer to shoulder significant investment
risk, (2) "do not offer the same predictability of
payments as Fixed Rate Annuity Contracts, " (3) are
"often quite complex, " and (4) are "subject
to significant conflicts of interest at the point of
sale." Final PTE 84-24, 81 Fed. Reg. at 21, 152-53.
Those engaged in selling FIAs would now have to satisfy the
conditions set forth in the BICE to be granted an exemption.
then filed this suit under the Administrative Procedure Act
(APA) and the Regulatory Flexibility Act (RFA). Only the APA
claim is at issue on appeal. MSG claimed that the DOL
violated the APA in three ways: (1) it failed to provide
adequate notice of its intention to exclude transactions
involving FIAs from PTE 84-24, (2) it arbitrarily treated
FIAs differently from other fixed annuities by excluding FIAs
from PTE 84-24, and (3) it did not adequately consider the
detrimental economic impact of its exclusion of FIAs from PTE
84-24. MSG alleged that it would lose 80% of its revenue if
the new regulation were to be enforced and sought a
preliminary injunction to prevent the DOL from implementing
the new regulation. The district court denied the preliminary
injunction. On cross-motions for summary judgment, the