U.S. Supreme Court Justice Antonin Scalia might be gone, but it’s his son who could be setting in place a legal challenge to the Department of Labor’s fiduciary rule.

The final rule is expected to come out between now and early May. Within days, a court challenge would almost certainly be filed by Eugene Scalia, son of the late justice, for his primary fiduciary client, Primerica (or by the U.S. Chamber of Commerce or other financial institutions and trade groups) at the U.S. Court of Appeals for the D.C. Circuit. Their challenge is likely to be accompanied by other plaintiffs in the financial services industry.

By law, this judicial panel, which is considered the second highest-ranking court in the land, is often the starting point for legal challenges to Labor Department rules. Primerica, Eugene Scalia and other plaintiffs probably would seek an injunction delaying implementation of the fiduciary rule. The younger Scalia served as the DOL's chief legal officer during the administration of George W. Bush.

Whether a challenge would be successful remains unclear. Courts don't like to grant injunctions, Andy Friedman of The Washington Update told advisors earlier this month at an Investment Management and Consulting Association Conference in New York City. Were the plaintiffs successful in convincing a court to issue injunctive relief, it would defer the whole issue into the next administration.

The process almost inevitably would mean a deliberation and a decision by the Supreme Court on the rule, if the case got that far. It would take place a year or two (or more) after President Obama left office.

Last year in Tibble v. Edison, Justice Scalia joined a unanimous court in ruling that pension fund administrators have an ongoing fiduciary duty to monitor investments.

But that doesn’t mean similar court support for a fiduciary rule is guaranteed, said David Levine, an attorney with the Groom Law Group, which represents employee benefit plan sponsors and service providers. The two cases are apples and oranges, he said.

Tibble “was about interpreting ERISA,” said Levine. The new challenge is about proper federal rule-making. And he noted that Justice Scalia turned a very critical eye to federal regulatory agencies. A more liberal justice appointed by Obama would more likely stand behind the regulators.

 

Hugh Berkson, president of the Public Investors Arbitration Bar Association, said the fiduciary rule should be on solid ground in any case because the DOL dotted its I’s and crossed its T’s.

“I would be very surprised if fighting the DOL final rule is successful. It certainly seems as though the department has done everything right,” he said.

In an interview last month, LPL Financial president Dan Arnold said that he did not expect challenges to the DOL to be successful. Over the long term, LPL, the nation's largest independent broker-dealer, is revamping its business in the expectation of increased regulatory oversight and scrutiny.

At the macro level, keep in mind that the high court has other senior citizens. Justice Anthony Kennedy is 79, the same age Justice Scalia was when he died last week. Ruth Bader Ginsburg is 82 and has had health problems. Stephen Breyer is 77.

If more justices pass away or resign and a new Democratic president fills those vacancies, the court, which has been pro-business in recent decades, could become more sensitive to the rights of consumers, said Brooks Magratten, editor of an American Bar Association book looking at federal judicial rulings on pension law.

A Republican appointment to the court would be more likely to oppose the fiduciary rule, but sometimes justices can surprise. The liberal favorite of the 20th century was Chief Justice Earl Warren, who helped pave the way for desegregated schools and the Miranda warnings for criminal suspects. Who nominated him? Republican Dwight David Eisenhower.