Gallus v. AMERIPRISE FINANCIAL, INC.
2012 U.S. App. LEXIS 6424
8th Cir.2012Background
- Shareholders of nine mutual funds allege Ameriprise breached § 36(b) fiduciary duty by charging excessive advisory fees.
- Plaintiffs contend fee levels were not arm's-length and differed from fees charged to institutional clients, implying improper profit from the adviser.
- District court granted summary judgment under Gartenberg framework; Gallus panel reversed then remanded after Jones v. Harris Associates.
- Supreme Court in Jones held § 36(b) liability hinges on fees being disproportionately large and not the product of arm's-length bargaining, with deference to board depending on process.
- On remand, court must assess whether fee negotiations and information disclosure were robust and whether fee disparities show arm's-length range outside acceptable bounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fees are disproportionately large under Jones | Gallus contends fees exceed arm's-length range. | Ameriprise argues fees fall within arm's-length range. | No genuine dispute; fees not shown disproportionately large. |
| Impact of Jones on process vs. outcome | Deficient process warrants less deference and stricter scrutiny of outcome. | Robust process justifies deference to board's decision. | Process flaws require rigorous look, but record supported outcome. |
| Use of comparisons to institutional fees | Disparity with institutional fees indicates non-arm's-length bargaining. | Such comparisons are probative but not dispositive. | Comparison alone insufficient; no material evidence of arm's-length deviation. |
| Effect of 12b-1 fees under § 36(b) framework | 12b-1 fees violate fiduciary duties. | Fees fall within Gartenberg framework and are not outside arm's-length range. | Summary judgment affirmed for 12b-1 fees under Gartenberg as applied. |
Key Cases Cited
- Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923 (2d Cir. 1982) (establishes Gartenberg framework for arm's-length fee review)
- Jones v. Harris Associates L.P., 130 S. Ct. 1418 (Sup. Ct. 2010) (defines arm's-length standard and deference based on process)
- Pepper v. Litton, 308 U.S. 295 (Supreme Court 1939) (fiduciary duty standard anchored in arm's-length bargain concept)
- Migdal v. Rowe Price-Fleming Int'l, Inc., 248 F.3d 321 (4th Cir. 2001) (framework guiding fiduciary duty analysis under § 36(b))
- Meyer v. Oppenheimer Mgmt. Corp., 895 F.2d 861 (2d Cir. 1990) (applies Gartenberg to 36(b) challenges to fees)