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Court Rules for Defendants in 17d-1 Case

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  • Baker, John
    Federal Judge Barbara Jones of the Southern District of New York, which sits in Manhattan, recently dismissed a lawsuit against a fund, its directors and
    Message 1 of 1 , Oct 5, 2004
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      Federal Judge Barbara Jones of the Southern District of New York, which sits in Manhattan, recently dismissed a lawsuit against a fund, its directors and advisers which contended that the expenses of a proxy fight over the election of directors could not be paid from fund assets without running afoul of Investment Company Act of 1940 Section 17(d) and Rule 17d-1. Daniels v. McMeekin, No. 01 CV 8868 (BSJ) (S.D.N.Y. Sept. 29, 2004). Clark Hodgson and Tom Dymek, with my own law firm of Stradley, Ronon, Stevens & Young, represented the defendants.

      Section 17(d) and Rule 17d-1 generally prohibit joint transactions between registered investment companies and their affiliates. In an earlier series of events, a shareholder of a closed-end fund sought to elect his nominees to the fund's board and sued to set aside the election results when that effort failed. In the present case, a different shareholder of the fund alleged, in a purported class action, that the defendants' earlier actions in soliciting proxies and in paying legal fees constituted a prohibited joint transaction.

      On a motion to dismiss, Judge Jones ruled that the plaintiff failed to state a valid claim. She found that because the proxy and litigation expenses were paid by the fund, not the affiliates, they did not constitute a joint transaction. She also ruled that, even if the proxy fight expenses had been jointly incurred, they would not have given rise to a violation of Section 17(d).

      I have placed the Daniels v. McMeekin opinion on the FundLaw website, and it is available at

      http://groups.yahoo.com/group/FundLaw/files/Daniels%20v%20McMeekin.pdf


      John M. Baker <JMB@...>
      Stradley, Ronon, Stevens & Young, LLP http://www.stradley.com
      1220 19th Street, N.W., Suite 600, Washington, DC 20036
      (202) 419-8413 Fax (202) 822-0140
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw
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