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Mayer Brown's Supreme Court and Appellate Practice Group distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community. We also email the Docket Report to our subscribed members and if you don't already subscribe to the Docket Report and would like to, please click here.

October Term 2008 - March 10, 2009

On March 9, 2009, the Supreme Court granted certiorari in one case of interest to the business community:

Investment Company Act—Fiduciary Duty of Investment Advisers

Congress passed the Investment Company Act of 1940, 15 U.S.C. §§ 80a-1 et seq., to protect mutual fund investors.  Section 36(b) of the Act imposes on investment advisers, who often create and manage mutual funds, “a fiduciary duty with respect to the receipt of compensation for services” from a mutual fund, and gives fund shareholders a private right of action for breach of that duty.  Id. § 80a-35(b).  The Act further provides that, in such an action, “approval by the [fund’s] board of directors” of the fee paid “shall be given such consideration by the court as is deemed appropriate under all the circumstances.” Id. § 80a-35(b)(2).  In Jones v. Harris Associates (No. 08-586), in which certiorari was granted today, the Supreme Court will consider the circumstances in which a shareholder’s claim that the fund’s investment adviser charged an excessive fee is cognizable under Section 36(b).

The plaintiffs in Jones own shares in several funds advised by Harris Associates L.P., the defendant.  Plaintiffs contend that Harris Associates was paid excessive fees in violation of Section 36(b).  The district court granted summary judgment to the defendant, and the Seventh Circuit affirmed.  In an opinion by Judge Easterbrook, the Seventh Circuit, observing that the modern mutual fund industry is highly competitive and that information about fund fees is readily available to investors, considered an array of factors to determine that plaintiffs had failed to make out a claim under Section 36(b).  Those factors included the nature and quality of the service provided to the fund, the fees paid to advisers by funds of similar size and goals, and the approval of the fees by the fund’s independent trustees.  The court also recognized that adviser compensation  may be “so unusual” as to provide evidence of a breach of fiduciary duty.  Judge Posner dissented, while recognizing that the result reached by the majority “may be correct.”  Other courts of appeals, while uniformly rejecting claims under Section 36(b), have articulated the standard using slightly different language.  E.g., Gartenberg v. Merrill Lynch Asset Mgmt., 694 F.2d 923 (2d Cir. 1982).

Absent extensions, which are likely, amicus briefs in support of the petitioner are due April 30, and amicus briefs in support of the respondent are due June 2.  Any questions about this case should be directed to Tim Bishop (+1 312 701 7829) in our Chicago office.

Yesterday, the Supreme Court also invited the Solicitor General to file a brief expressing the views of the United States in another case of interest to the business community:

American Bankers Association v. Brown, No. 08-730. The question presented is whether the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq., preempts the California Financial Information Privacy Act (commonly known as “SB1”) insofar as it regulates the exchange of information among financial institutions and their affiliates.

Mayer Brown's Supreme Court & Appellate practice distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community and distributes a Docket Report-Decision Alert whenever the Court decides such a case. We hope you find the Docket Reports and Decision Alerts useful, and welcome feedback on them (which should be addressed to Andrew Tauber, their general editor, at atauber@mayerbrown.com or +1 202 263 3324).
Feel free to forward this message to anyone who you believe might be interested in the Decision Alert.

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Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed.

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