Round two of the fight between insurance giant MetLife and the government over its status as a systemically important financial institution heads to court in October.

The U.S. Court of Appeals for the D.C. Circuit has scheduled oral arguments in the Financial Stability Oversight Council’s appeal of MetLife’s successful lawsuit and subsequent de-designation for Oct. 24 at 9:30 a.m.

FSOC was established under the Dodd-Frank Act, charged with identifying risks to the nation’s financial stability and responding to emerging risks. An institution it deems as systemically important is required to conduct regular stress tests, prepare credit exposure reports, and draft “living wills” that document resolution and liquidation plans. They may also face enhanced prudential standards, including requirements regarding risk-based capital and leverage, liquidity, risk management, early remediation, and credit concentration. In December 2014, it designated Metlife, the nation’s largest insurance company, as a SIFI. 

In January 2015, MetLife filed its legal challenge, the only time a SIFI designation has been brought before a federal judge. The lawsuit challenged both the specifics of its designation and the general approach taken by FSOC. The company rejected the notion that it could pose a threat to U.S. financial stability calling that conclusion “arbitrary and capricious” and “reached through a procedure that denied MetLife its due process rights and violated the constitutional separation of powers.”

The company added that FSOC had “an obligation to consider reasonable alternatives to designating MetLife as systemically important.” Those alternatives include the “activities-based approach” FSOC is presently considering for asset managers. It would impose enhanced supervision on certain activities deemed to be particularly risky, without designating the entire company as systemically important. Despite “the repeated statements of key legislators and federal financial regulators that traditional insurance activities do not pose systemic risk to the economy,” FSOC provided “no reasoned explanation for failing to pursue an activities-based approach for insurance companies.”

In a more general criticism, MetLife called the designation process “opaque” and objected to “procedural shortcomings that severely impaired its ability to respond.”

In March, ruling in the case of MetLife Inc. v. Financial Stability Oversight Council, U.S. District Judge Rosemary Collyer revoked the SIFI designation. “FSOC made critical departures from two of the standards it adopted in its Guidance, never explaining such departures or even recognizing them as such. That alone renders FSOC’s determination process fatally flawed,” she wrote.

It was troubling to Collyer that “assumptions pervade the analysis.” Every possible effect of MetLife’s imminent insolvency “was summarily deemed grave enough to damage the economy,” she wrote. The term “could sustain losses” was bandied about “with no quantification whatsoever.” FSOC was “content to evaluate interconnectedness and to refrain from calculating actual loss and stopped short of projecting what could actually happen if MetLife were to suffer material financial distress.”

The lack of a comprehensive analysis of costs and benefits also undermined FSOC’s case. “[It] refused to consider the costs of its final determination to MetLife, and purposefully so,” Collyer wrote. “It “foisted billions of dollars of regulatory costs upon MetLife under the auspices of safeguarding it.”

Acting as an FSOC spokesman, Treasury Secretary Jacob Lew pledged to appeal the decision.

That appeal could have a profound effect on how FSOC approaches SIFI designations, especially for non-bank financial institutions. Non-bank entities receiving the designation include American International Group, Prudential Financial, and GE Capital on the list on non-bank SIFIs. Designated banks include Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, Bank of America, Merrill Lynch, and Wells Fargo.

Hints at the government’s strategy come from Judge Collyer’s March 30 opinion, unsealed in April.

FSOC argued, albeit unsuccessfully, that the Dodd-Frank Act did not require a cost-benefit analysis. Through its legal representation, the Council also disputed MetLife’s argument  that it is not predominantly engaged in financial activities under FSOC’s designation authority because the agency is limited by the Dodd-Frank Act to “U.S. nonbank financial companies.” The firm claimed it was not eligible for designation because more than 30 percent of its consolidated assets and more than 25 percent of consolidated revenues are extraterritorial.