611 F. App'x 359
7th Cir.2015Background
- Plaintiffs (Jones et al.) sued Harris Associates under §36(b) of the Investment Company Act, alleging Harris charged excessive advisory fees for the Oakmark mutual funds.
- The district court granted summary judgment for Harris, finding fees comparable to those charged by advisers to similar funds, that boards received accurate information and disinterested trustees approved the fees, fee schedules declined as assets grew, and the funds’ net returns were at or above peer norms.
- The Seventh Circuit initially affirmed under its own legal standard, but the Supreme Court reversed on the legal test and remanded, holding liability requires a fee so disproportionately large it could not have resulted from arm’s-length bargaining (Jones v. Harris Associates, 559 U.S. 335 (2010)).
- On remand the parties filed supplemental Rule 54 statements; plaintiffs reiterated a procedural challenge that a trustee (Morgenstern) was improperly treated as disinterested because of deferred compensation ties to Harris.
- The Seventh Circuit concluded plaintiffs produced no disputed facts material to the Supreme Court’s arm’s-length bargaining test: fees were market-comparable and the services/returns supported the fees; comparisons to Harris’s institutional clients were inapt without evidence that services/costs were comparable.
- The court affirmed the district court’s summary judgment for Harris and apologized for an administrative delay in processing post-remand filings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Harris’s fees violated §36(b) (were so disproportionate they could not stem from arm’s-length bargaining) | Fees were excessive and should be found unlawful under §36(b) | Fees were in line with market rates for comparable mutual funds and reflected arm’s-length bargaining | Held for Harris; undisputed evidence showed fees comparable to those produced by bargaining and services/returns justified fees |
| Whether a procedural flaw (improperly treated trustee) independently invalidates fees | Morgenstern’s deferred-compensation ties rendered him not truly disinterested, so approvals were procedurally defective | Trustee determinations were procedurally sound; process challenge insufficient alone under Jones | Rejected as an independent §36(b) violation; Supreme Court limited inquiry to fee disproportionality |
| Whether comparisons to fees charged to Harris’s non‑public clients (e.g., pension funds) are probative | Compare Oakmark fees to lower institutional fees to show disproportionality | Such comparisons are inapt absent evidence services/costs are comparable; mutual funds have unique burdens | Rejected plaintiffs’ comparisons as unsupported; such comparisons merit weight only if services and costs are similar |
| Whether summary judgment was appropriate on remand under the Supreme Court’s standard | Plaintiffs argued factual disputes warrant further proceedings | Harris argued undisputed facts compel judgment under the new standard | Affirmed summary judgment for Harris; plaintiffs offered no material factual disputes relevant to the arm’s-length test |
Key Cases Cited
- Jones v. Harris Associates L.P., 559 U.S. 335 (2010) (establishes §36(b) test: fee so disproportionately large it could not have resulted from arm’s-length bargaining)
- Jones v. Harris Associates L.P., 527 F.3d 627 (7th Cir. 2008) (Seventh Circuit’s prior decision affirming district court’s judgment under its earlier standard)
- Gallus v. Ameriprise Financial, Inc., 675 F.3d 1173 (8th Cir. 2012) (process‑based failures alone do not constitute independent §36(b) violations; focus is on whether fees themselves are excessive)