Do plaintiffs suing a fund adviser for excess compensation under Section 36(b) of the Investment Company Act of 1940 have a right to trial by jury? Courts historically have ruled that there is no right to a jury trial under Section 36(b), but plaintiffs in a recent case argued that those holdings are no longer good law in light of recent Supreme Court cases. A U.S. Magistrate has now recommended in a pending case that the plaintiffs' jury demand be struck. Report and Recommendation, Sivolella v. AXA Equitable Funds Management, No. 3:11-cv-04194 (D.N.J. July 3, 2013).
The Seventh Amendment to the Constitution provides a right to trial by jury in suits at common law, where the value in controversy exceeds $20. There is no right to a jury trial, however, for equitable claims - those customarily heard by a court of chancery. Delaware and a few other jurisdictions still have chancery courts, but federal courts (and most state courts) have merged law and equity, though it still matters in determining who gets a jury trial. The Report and Recommendation concludes that, regardless of the terms used, Section 36(b) provides in substance for disgorgement of excessive fees, a form of equitable restitution for which there is no right to a jury trial. In contrast, the Supreme Court case on which plaintiffs most relied dealt with legal restitution, which is essentially an action at law for breach of contract, while a second case was intended to apply only to copyright actions for damages, which have long been tried to juries.
Under Federal Rule of Civil Procedure 72, the plaintiffs now have 14 days after being served with the report to file objections to it as being contrary to law. The report seems well-reasoned, however, so it is not clear whether they will take this additional step.
I have placed the Report and Recommendation on the FundLaw website (free registration with Yahoo Groups may be required), and it is available at
John M. Baker
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/