Jones v. Harris Associates L.P.
537 F.3d 728
7th Cir.
2008
Check Treatment
Docket

*1 3553(a) guidelines range light § was reasonable in of analyze the failing to such as 3553(a). § explain the failing adequately factors or v. United States Gor- chosen sentence. Panaigua- We are reluctant to address (cit- (7th Cir.2008) don, 659, 666 513 F.3d Verdugo’s argument regarding the reason- Gall, The district at 128 S.Ct. sentence, considering ableness of his that 3553(a) § fac- each court need not address argument he wholesale cribs Chavez’s fashion, explicitly articulat- tor in checklist ar- specifically examining without how the rather, factor; for each ing its conclusion gument applies sentencing to his own simply give adequate the court must in hearing. Regardless, nothing we find reasons, with consistent statement suggest that the district the record to 3553(a), believing § the sentence it se- 3553(a) § court failed to consider the fac- Shannon, at appropriate. 518 F.3d lects imposing in sen- Panaigua-Verdugo’s tors 496. tence, Panaigua-Verdugo presents and nothing presump- to disturb the rebuttable sentencing In Chavez the bot within-guide- tion of reasonableness of his advisory guide tom the 108-135 month Shannon, lines sentence. See 518 F.3d at sufficiently court range, line the district 496. 3553(a) § analyzed factors and ex the Accordingly, we the sentences of AffiRM sentence, plained the reasons for Chavez’s Panaigua-Verdugo and Chavez. including a serious consideration 3553(a)(1) § and ness of the offense. See

(2)(A). court did not While the district 3553(a) factor, it § was not

address each that

required argues to do so. Chavez pleas for lenien

court did not address his that de

cy, including negative effects family.

portation would have on his On directly contrary, the district court Jerry JONES, Mary Jones, N. F. issue, noting: this addressed Winerman, Arline Plaintiffs- punishment, will be Appellants, The sentence greater even deportation will be family the number of punishment given L.P., HARRIS ASSOCIATES you that have the United members Defendant-Appellee. you’d thought States. I wish criminal you got before involved this No. 07-1624. didn’t, Unfortunately you you activity. Appeals, United States Court of punish- there is a get did involved and Seventh Circuit. ment that follows. Aug. 2008. with engaged The district court Chavez’s regarding the effects concerns deportation subsequent

sentence family. have on his We find

would Patrick, Richardson, Bradley, court’s statement of reasons James C. district Charleston, Brickman, SC, light of these consid- adequate, was Westbrook Austin, TX, erations, impose Young, decision to a Ernest for Plaintiffs- the court’s advisory Appellants. sentence at the low end

729 Drinker, Nash, Jr., approach B. Biddle & “is wanting.” Gordon Id. It cites Green Reath, IL, Donovan, Jr., D. Chicago, John Advisory Corp., 738, v. Nuveen 295 F.3d Blais, Boston, (7th Gray, Brian R. Ropes Cir.2002), & 743 n. 8 proposition, for this MA, for Defendant-Appellee. but neither in footnote 8 nor elsewhere in opinion any is there suggestion that EASTERBROOK, Judge, Before Chief Gartenberg’s treatment of the issue of ex EVANS, KANNE and Judges. Circuit incorrect; cessive fees is Green was not excessive-fee panel case. The cites anoth PER CURIAM. er opinion, Green Green v. Fund Asset panel unanimously has voted L.P., (3d Management, 286 F.3d 682 Cir. deny petition rehearing. judge for A 2002), as suggesting disagreement with a active service called for vote on the Gartenberg, again the amount of com suggestion rehearing en A banc. ma- pensation was not at issue. banc, jority rehearing did not favor en petition therefore is denied. Circuit only Jones is the appellate opinion noted Judge Ripple participate did not disagreeing Westlaw as with Garten- consideration or decision of this case. berg; positive there is a slew of citations. See, e.g., Migdal v. Rowe Price-Fleming POSNER, Judge, Circuit with whom Int'l, Inc., (4th 321, 248 F.3d 326-27 Cir. ROVNER, WOOD, Judges Circuit 2001); In re Salomon Barney Smith Mu WILLIAMS, join, and TINDER tual Fund Litigation, Fees 528 F.Supp.2d dissenting from rehearing denial of en 332, (S.D.N.Y.2007); 336-37 Gallus v. Am banc. Financial, Inc., eriprise 497 F.Supp.2d This case merits the attention of the full 974, (D.Minn.2007); 979 Sins v. Janus rejected panel approach court. The LLC, Capital Management, 2006 WL by taken the Second in Gartenberg Circuit (D.Colo. 3746130, Dec.15, 2006); at *2 Inc., v. Lynch Management, Merrill Asset Co., v. Fargo Siemers Wells 2006 WL (2d Cir.1982), 694 F.2d deciding 923 (N.D.Cal. 2355411, at *15-16 Aug.14, whether a mutual fund adviser has breach- 2006); Inc., Hunt v. Invesco Funds Group, fiduciary fund, ed his duty duty (S.D.Tex. 2006 *2 WL June 36(b) created section of the Investment 2006); Ladner, Stegall F.Supp.2d 394 Act, Company §§ seq. U.S.C. 80a-l et (D.Mass.2005); 373-74 Becherer v. Gartenberg consider, permits a court to as (S.D.Ill. Burt, at *2 WL breach, a in determining factor such Mar.6, 2003); Millenco L.P. v. MEVC Ad whether the fee is “so disproportionately visors, Inc., 2002 WL at *3 large that it no bears reasonable relation- (D.Del. Aug.21, The Coates and ship to the services rendered and could not cites, Hubbard article that the panel John have been product arm’s-length bar- Hubbard, C. Coates & R. “Competi Glenn gaining.” 694 F.2d at 928. The tion in the Fund Industry: Mutual Evi opinion states that it “now disapprove^] dence and Implications Policy,” 33 J. Gartenberg A approach.... fiduciary (2007), expressly L. 151 approves (cid:127)must make full play disclosure and no Gartenberg, seeking ju while to fine tune subject cap tricks but is not to a on com- interpretations dicial of some pensation.” Jones v. Harris Associates In cap dicta. the section of the article (7th L.P., Cir.2008). 527 F.3d tioned Gartenberg,” “Refinements to opinion says this court had authors state that shifts in “radical exist previously law, suggested ing that the Gartenberg sweeping or for new laws and Scratched,” N.Y. room, Every Back Gets ground on the are unwise

regulations, Times, p. B9. Directors Apr. made that the exist not been the case has natu- companies of funds and regulation often CEOs of other framework for *3 Id. intrinsically paid. flawed.” well advisory rally think that CEOs should be Gartenberg if has not as they picked by at 213. It’s are the CEO. And often hard on fund advisers. Arms, be too proved pro- which Compensation consulting litigation ] “Subsequent, [after generous compensation cover for vide has resulted almost cases directors, in fee excessive packages by voted boards for the defendants judgments uniformly in they interest because have a conflict of have been some notable ... there although advice only compensation for their paid not have defendants wherein settlements to the firm —services but for other services in the reduction fee agreed prospective by the officers they for which are hired al., D. et Securities Cox schedule.” James they advised on. compensation whose (3d Materials 1211 and Regulation: Cases 37-39; Fried, supra, & Gret- Bebchuk ed.2001); D. Cox & John see also James Big Payday “How Morgenson, chen Expense Fund Disclo Payne, W. “Mutual Times, Consultants?,” N.Y. June Pay Perspective,” 83 A Behavioral sures: 22, 2008, Bl; Weinberg, Michael p. Neil (2005). U.L.Q. 907, 923 Wash. Randall, “Paying K. Maiello & David 114; rejection Failure,” Forbes, its of Garten- May p. bases analysis economic that is mainly Lublin, on an berg Bene- Joann S. “Conflict Concerns on the basis of Advisors,” J., reexamination ripe for Independent Pay fit Wall St. compen- that executive indications growing Buffet, 10, 2007, B3; p. Dec. Warren E. traded firms often large publicly in sation “Letter to the Shareholders of Berkshire incen- because feeble is excessive Inc.,” 8,p. www. Hathaway, Feb. com- police of directors to tives of boards berkshirehathaway.com/letters/20031tr .pdf See, e.g., Lucian Bebchuk pensation. (visited 28, July Fried, Pay without Jesse Performance: mar- Competition product capital Promise Executive Com- Unfilfilled prob- kets can’t be counted on to solve the (2004); Charles A. O’Reil- pensation 23^4 of incen- lem because the same structure Main, Than Brian “It’s More ly III & G.M. large corporations all operates tives on Economics,” Organizational 36 Simple entities, mutual including and similar Brick, (2007); E. Ivan Oded Dynamics component Mutual funds are a funds. Wald, Compen- K. “CEO Palmon & John industry, financial services where Firm sation, Compensation, and Director as is more rampant, abuses have been Cronyism?,” 12 Evidence of Performance: than it when Coates and evident now was (2006); Arthur Lev- J. Finance their article. A business Hubbard wrote itt, Jr., Culture and the Prob- “Corporate at Northwestern Univer- professor school Compensation,” 30 J. lem of Executive sity recently observed that “business con- (2005); Wilson, Gary Corp. Law by mitigate agency can conflicts nections CEO,” Imperial Wall “How to Rein transfers, efficient information facilitating A15; J., p. Joann S. St. can also be channels for inefficient Lublin, Pay Flex Their Muscles: “Boards found “evidence favoritism.” She Increasingly Exercising Are Directors among agents in mutual [the connections Setting Compensation; CEO More Clout favoritism, industry] foster Cases, Actually the Boss Is Some J., Fund directors Pain,” of investors. Apr. St. detriment Feeling a Little Wall advisory manage the funds Rl; Stein, firms Ben “In the Board- p. preferentially hire each other based on are indeed captive. The Oakmark-Harris past interactions. When directors and the relationship matches the arrangement de- connected, management are more advisors scribed in Report the Senate accompany- by more and are capture 36(b): rents monitored ing § a fund “organized by its in- intensely. findings the board less These vestment adviser provides which it with support recent calls for more disclosure almost all management services.” S.Rep. regarding negotiation advisory con- No. 91st Cong., (1969), 1st Sess. 41 tracts fund boards.” Kuh- Camelia M. quoted in Green v. Fund Manage- Asset nen, Networks, Corporate “Social Gover- ment, L.P., supra, 286 F.3d at 685. Fi- *4 Contracting nance and in the Mutual Fund nancial managers from Harris founded the (Mar. 1, 2007), Industry” http://ssrn.com/ family Oakmark of funds and each (visited 2008). July abstract=849705 year since then the Oakmark Board of The of Analysis SEC’s Office Economic Trustees has reselected Harris as the (the principal adviser to the SEC on the fund’s adviser. manages Harris the entire issues) economic of aspects regulatory be- Oakmark portfolio, which of consists seven lieves that mutual fund “boards with a funds. The prospectus Oakmark de- greater proportion independent of di- scribes the relationship way: “Subject this likely negotiate rectors are more to and to authority the overall the board of .of fees, approve merge poorly lower perform- trustees, [Harris Associates] furnishes quickly provide funds more or greater continuous supervision investment protection late-trading investor from and management to the Funds and fur- also timing,” although market “broad cross-sec- nishes office space, equipment, and man- analysis tional reveals little consistent evi- agement personnel.” The Oakmark dence that composition board is related to Funds, “Prospectus,” Jan. p. higher lower fees and returns for fund litera- www.oakmark.com/fundht/ shareholders.” “OEA Memorandum: Lit- (visited ture.asp?selected=Prospectus# Independent erature Review on Mutual 2008). Recall Professor Kuhnen’s July Directors,” Fund Chairs and Dec. observation that “when directors and the www.404.gov/rules/proposed/s70304/ connected, management are more advisors (visited oeamemol22906-litreview.pdf capture more rents and are monitored intensely.” the board less A particular concern in this case is the panel opinion says The that the fact charging adviser’s captive its funds more “that mutual ‘captives’ funds are of invest- than charges twice what it independent ment advisers does not curtail compe- this funds. According figures An money tition. adviser can’t make from panel opinion, captives charged the are captive high its fund if fees drive investors percent one of the first billion assets $2 away.” true; F.3d 632. That’s but while the independents charged rough- high will fees drive away? investors ly one-half of one percent for the first chief reason for “[T]he million and substantial adviso- roughly one-third of one $500 ry fee level percent equity differences between everything panel above. The pension portfolio fund opinion managers equi- throws out suggestions some on why ty mutual may justified, portfolio managers this difference is that be suggestions advisory purely pension are offered field are as sub- speculation, ject rather than to a anything having marketplace arm’s-length where an evidentiary empirical rule, or bargaining basis. And occurs. As a [mutual] there is no doubt that captive funds fund shareholders neither from benefit point, which is That misses prices nor from siveness. bargaining arm’s-length compensation can be ev- arm’s-length that unreasonable those that approximate that fiduciary duty. of a it the norm.” idence breach yield were bargaining would Brown, L. & Stewart P. Freeman John have creat- opinion recognized is Advisory Fees: The Cost Fund “Mutual panel did split, although a circuit ed Interest,” J. L. Conflicts opin- acknowledge this or circulate its not (2001). publica- full court in advance of ion to the tion, creates a required that the as is when acknowledges panel opinion See, e.g., “Fund Alert: Sev- split. could be circuit compensation of trustees level of Rejects Gartenberg Approach enth Circuit that a court will infer “so unusual occurred, Determining Appropriateness or that must have deceit Fees,” May Management Fund decision have Mutual persons responsible [the] 2008, www.stradley.com/newsletters.php? Compensa- at 632. abdicated.” 527 F.3d id=347; “Investment might not seem to action=view “so unusual” tion is Management Alert: Seventh Circuit Court materially compensation from differ *5 Rejects Gartenberg,” June large.” Appeals But al- of disproportionately “so Publi- industry sug- commentator has though one www.drinkerbiddle.com/flles/ may “courts ... conclude gested that cation/f74b9bc2-9376-4b60-b732- PublicationAt- Appeals has done fact what Court 0242868a873c/Presentation/ 7f-8b35-440a-8b53~ merely articulate the Garten- Jones [in ] tachment/be9e67 “Email way,” 022caedbl3e0/Gartenberg.pdf; in a different “Sev- berg standard Early Disregard Gartenberg, But Alerts: It’s Too ‘Disapproves’ enth Circuit Advisory Fee Fundamentally During Dif- Factors Approach Is This New Renewals,” 27, 2008, May www.wilmerhale. ferent?,” www.bingham.com/ May (visited July com/publications/whPubsDetail.aspx? Media.aspx?MediaID=7004 “Appeals Rejects Court 28, 2008), important publication=8329; differ- this misses Claims, Fund Excessive Fee Gartenberg approach Mutual ence between panel’s Adopting “so New Standard for Evaluation approach. The panel’s and the Fees,” May www.ropesgray.com/ applied solely standard is to be unusual” litigationalert/?PublicationTypes=0el6874 fee with the by comparing the adviser’s b-f94e-4696-b607-de259b87al3f; “The by other mutual fund advis- charged A Gartenberg: Approach Future of New Gartenberg’s disproportionately “so ers. Fees,” Evaluating not so limited. Investment Advisor large” rightly standard is May www.paulhastings.com/assets/ that enables mu- governance The structure 919.pdf?wt.me_ID=919.pdf. charge publications/ exorbitant tual fund advisers to (Ml were visited on panel’s com- these web sites industry-wide, fees is so 2008.) widely if fol- parability approach would in- fees to become the lowed allow those may be correct. The outcome of this case dustry’s in this case there was floor. And gives why, reasons panel opinion some rejected by the comparison, an alternative in its unelabo- though one of them is weak airy speculation— panel on the basis of managed by rated form: the funds charges that Harris comparison of the fees faster than the indus- grown Harris have higher the much independent funds with to know over try norm. One would need it the funds controls. charges fees that it they grown had faster to know period what other than random factors were points out that courts whether panel opinion split, But the creation of a circuit for exces- at work. corporate do not review salaries importance of the issue to the mutual industry, and the one-sided character panel’s analysis hearing warrant our en banc. the case CO.,

NAUTILUS INSURANCE

Plaintiff-Appellee, REUTER, Individually

David and as

Representative of the Estate of Shir-

ley Reuter, Chretien, and Justin L.

Defendants-Appellants. 06-4019,

Nos. 07-1400. *6 of Appeals,

United States Court

Seventh Circuit.

Argued Dec. 2007.

Decided Aug. 2008.