U.S. Supreme Court nominee Brett Kavanaugh ruled in favor of the FPA 11 years ago in a decision that strictly adhered to the Investment Advisers Act and fiduciary standards.
The Yale-educated Kavanaugh, 53, appointed to the U.S. Court of Appeals for the D.C. Circuit by President George W. Bush in 2003, sided with the Financial Planning Association in its lawsuit seeking to overturn the Securities and Exchange Commission’s controversial "Merrill Lynch" rule in 2007. The rule had given the broker-dealer industry the green light to charge asset-based fees without having to register as investment advisors since 1999.
A former clerk of Supreme Court Justice Anthony Kennedy, Kavanaugh was part of a two-vote majority on a three-judge panel that found that the SEC overstepped the authority Congress gave it in the Investment Advisers Act of 1940 by exempting broker-dealers from registering as advisors, a ruling that upheld fiduciary rules.
The case, combined with the nomination of Kavanaugh, is meaningful for the financial planning profession and advisors in light of a current SEC "best-interest" proposal that critics say once again would exempt brokers who offer fee-based accounts from registering as advisors, some 10 years after the FPA’s victory.
Dan Moisand, who was FPA president at the time of the lawsuit, said adding a Supreme Court justice like Kavanaugh, who adhered to the letter of the Advisers Act in the FPA case, would be reassuring to fiduciary proponents. “If things got to the Supreme Court level, it’s nice to know that Kavanaugh is probably going to interpret things similarly to the way he did with the FPA lawsuit and hold the SEC’s feet to the fire when it comes to enforcing the actual law,” said Moisand, president of the Florida-based advisory firm of Moisand Fitzgerald Tamayo.
Merrill Hirsh, the lawyer who won the case for the FPA, said Kavanaugh decided the case narrowly and strictly on his interpretation of the advisor law. “I had the experience of pleading the case in front of Judge Kavanaugh and what I saw was his judicial demeanor was fine and he decided the case based on the law,” said Hirsh, a former Department of Justice lawyer.
Hirsh pointed out, with some degree of irony, that in addition to Kavanaugh, the panel that decided the FPA’s case included Merrick Garland, President Obama’s unsuccessful Supreme Court nominee in 2016, who dissented, and Judge Judith Rogers, a Clinton-appointee who authored the decision.
“From what I saw, they all based their decisions on judicial interpretation of what Congress intended and not on the basis of politics or their views of the world,” added Hirsh, who helms the law office of Merrill Hirsh in Washington, D.C.
Kavanaugh’s nomination is expected to ignite a political battle in the U.S. Senate, given that his appointment could give the court a conservative tilt for decades to come. With the nomination, Trump hopes to replace Kennedy, a conservative who has voted with the liberal wing on issues such as abortion and gay marriage, with a longtime conservative.
Kavanaugh’s nomination to the prestigious D.C. Circuit, which has been a stepping-stone court for several Supreme Court justices, was held up for three years by Democrats who asserted that his Republican government service—including work for Bush and a stint helping special prosecutor Ken Starr’s investigation into former President Bill Clinton—made him unfit for judicial appointment. In 300 opinions since then, Kavanaugh has shown keen support for expansive executive branch powers and limited special counsel mandates.