Parties Dispute Effect of Jones v. Harris Associates Ruling
- Who won Jones v. Harris Associates? Since the Supreme Court's opinion, construing the right of action against fund advisers for excessive compensation under Section 36(b) of the Investment Company Act of 1940, came down on March 30, both the fund industry and shareholders' rights advocates have claimed victory. Now an early test of those claims is to be found in the further proceedings in the case itself, which the Supreme Court remanded to the U.S. Court of Appeals for the Seventh Circuit.
Ordinarily, one might expect the Seventh Circuit, in turn, simply to remand to the district court for further proceedings. That, after all, is what the Eighth Circuit did on the remand of Gallus v. Ameriprise Financial; the Supreme Court on April 5 granted the defendant's petition for certiorari, vacated the Eighth Circuit's judgment, and remanded for further consideration in light of Jones v. Harris Associates, and the Eighth Circuit on June 4, without any further filings by the parties, remanded to the district court. In the Seventh Circuit, however, Circuit Rule 54 provides that, when the Supreme Court remands for further proceedings, the parties shall file statements of their positions as to the action which ought to be taken on remand.
Under the plaintiffs' reading of the Supreme Court opinion, seizing on what most observers had thought to be a passing reference to prior precedent, a Section 36(b) plaintiff can prevail by showing either that the fee approval process was not conducted in good faith or that the outcome is inequitable. Arguing that there were problems in the fee approval process, the plaintiffs urge that the court of appeals should reverse the district court's denial of their motion for summary judgment and remand with instructions that the district court consider whether to make a damages award or to fashion equitable relief. Less implausibly, the plaintiffs also argue that the district court's summary judgment ruling for the defendant varied in several respects from the Supreme Court's standard and should be vacated, with the matter remanded for trial.
The defendant, in its turn, argues that the Supreme Court standard is congruent with the standard applied by the district court. Thus, the defendant argues, the district court's grant of summary judgment should be reconsidered by the Seventh Circuit on the briefs already submitted by the parties and reaffirmed on that basis. In a supplemental filing, the defendant rebuts the plaintiffs' argument that the Supreme Court ruling allows a Section 36(b) violation to be proved by showing a deficient process alone.
Will the Seventh Circuit stick to the default script and simply remand to the district court for further proceedings? Or will it follow the views of one side or the other, affirming the district court's ruling or remanding the case for trial? I think we can safely rule out the possibility that the court will direct summary judgment for the plaintiffs, which would be an outcome difficult to reconcile with either the Supreme Court's ruling or the portion of the prior Seventh Circuit ruling that was not appealed.
I have placed the parties' statements on the FundLaw website (free registration with Yahoo Groups may be required), and they are available at these links:
For my most recent post on Jones v. Harris Associates, with links to the opinion and to my Fund Alert on the case, see
For my prior post on Gallus v. Ameriprise Financial, see
John M. Baker <JMB@...>
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
1250 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
FundLaw Listowner http://groups.yahoo.com/group/fundlaw