Saturday, April 25, 2009
The 8th Circuit, in Gallus v. Ameriprise Financial (4/08/09) -- an excessive mutual fund fees case under Investment Company Act section 36(b), reversed the district court's grant of summary judgment for the defendant because it found that the lower court construed too narrowly the extent of the defendants' duties in its analysis of the Gartenberg factors.
We believe that the proper approach to § 36(b) is one that looks to both the adviser’s conduct during negotiation and the end result. ...We conclude that the district court erred in holding that no § 36(b) violation occurred simply because Ameriprise’s fee passed muster under the Gartenberg standard. Although the district court properly applied the Gartenberg factors for the limited purpose of determining whether the fee itself constituted a breach of fiduciary duty, it erred in rejecting a comparison between the fees charged to Ameriprise’s institutional clients and its mutual fund clients. ...
Likewise, the district court should not have engaged in so limited a scope of review. Ameriprise’s conduct must be evaluated independent from the result of the negotiation. The district court concluded that Ameriprise did not breach its fiduciary duty in one way (by setting a fee that was exorbitant relative to that of other advisers), but it should have also considered other possible violations of § 36(b). Specifically, the court should have determined whether Ameriprise purposefully omitted, disguised, or obfuscated information that it presented to the Board about the fee discrepancy between different types of clients. The record indicates that there are material questions of fact on this issue.