This administrative law case involved a challenge to a regulation promulgated by the Department of Financial Services (“DFS”). The Court (Singas, J.) unanimously sustained the regulation as valid.
The regulation at issue was called Regulation 187. It established requirements for individuals marketing life insurance and annuity products. Specifically, the regulation required that the seller of such a product act in the purchaser’s “best interest” when making a “recommendation.” Under the regulation, a seller was required, among other things, to elicit “suitability information” from the purchaser—basically, information about the purchaser’s needs and objectives that would allow the seller to evaluate whether purchasing a product would be in the purchaser’s best interest.
Petitioners in this case were annuity and life insurance sellers subject to the regulation. They argued that the regulation was unconstitutionally vague; they also raised a series of other administrative-law challenges to the regulation. Supreme Court rejected those challenges, but the Third Department struck the regulation down as impermissibly vague. On an appeal as of right, the Court of Appeals unanimously reversed.
First, the Court rejected petitioners’ vagueness challenge. Petitioners focused on three terms in the regulation: “recommendation,” “suitability information,” and “best interests.” But the Court held that the regulation’s terms, viewed in context and common sense, put an ordinary person sufficiently on notice of the regulation’s requirements to satisfy due process. True, the regulation did not definitively identify the communications that would qualify as a “recommendation.” But the regulatory definition of that term, although general, relied on commonly understood legal concepts that gave sufficient precision to the concept to pass constitutional muster. Likewise, the regulation gave “clear boundaries” for understanding what constituted “suitability information” that a seller must consider, even if it didn’t provide an exhaustive list of the information that would qualify. And the Court waved off any vagueness argument about the requirement that a transaction to be in a purchaser’s “best interests,” saying that the term simply required sellers to recommend products based on the purchaser’s interest, not the seller’s potential financial gain.
The Court next rejected petitioners’ additional administrative-law challenges to the regulation. The first of those was a challenge under Boreali, a unique state-law doctrine that limits administrative authority where an agency engages in impermissible legislative policy-making. That did not happen here, the Court explained, because the Legislature gave DFS clear policy criteria for its regulation. To the extent DFS made policy decisions in crafting its regulation, the Court concluded that those decisions “simply fill[ed] in the details of the legislature’s pre-stated policy.” The Court then rejected petitioners’ challenge under the State Administrative Procedures Act (SAPA), finding the paper trail DFS created in promulgating the regulation was more than sufficient to satisfy that statute’s requirements. And the Court lastly rejected a claim that the regulation was arbitrary or irrational, noting that petitioners’ claim on this front was more a disagreement with the policies underlying the regulation than an argument that they were irrational.