Eighth Circuit Raises Bar Further on Fund Fiduciary Breach Suits
The U.S. Court of Appeals for the Eighth Circuit ruled that a failure to adequately compare mutual fund fees to fees charged to institutional accounts will not alone allow plaintiffs to survive summary judgment when suing for a breach of fiduciary duty. The plaintiffs had argued that the fund company violated Section 36(b) of the Investment Company Act by charging excessive fees, evidenced by lower fees charged to institutional accounts. The Court opined that the Board process, which may not have adequately considered institutional account fees, only goes to the deference to be afforded to the Board’s final approval of fees. A failed board process does not create a breach of fiduciary duty if the fees themselves are not excessive. The Court altered the way it had previously decided the case because of the Supreme Court decision in Jones v. Harris. Separately, the Court also decided that boards should apply the Jones/Gartenberg standard when evaluating 12b-1 fees rather than requiring an analysis of whether such fees somehow benefit funds and their shareholders.