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Ninth Circuit Decision in Fee Litigation

The Ninth Circuit Court of Appeals has affirmed a district court decision holding that the plaintiffs failed to prove that Capital Research breached its fiduciary duty under Section 36(b) of the Investment Company Act of 1940 in an excessive fee suit against the funds' adviser and affiliated distributor.  The opinion, labeled "Not for Publication," was filed August 24, 2011 by a three Judge panel.  The district court ruling, which was issued in 2009, had preceded the Supreme Court decision in Jones v. Harris, and the district court had elected to use the Gartenberg standard to analyze the facts.  The Ninth Circuit found that the district court correctly applied the Gartenberg factors, and also explained that:

The Act, Jones, and Gartenberg all require the court to calibrate the degree of deference afforded the independent directors' expertise based on the care and conscientiousness with which they performed their duties.

The opinion cites with approval the district court's conclusion that "based on the entirety of the record before it, that the Unaffiliated Directors carefully and diligently exercised their responsibility in approving the fees at issue."  The Ninth Circuit agreed with the plaintiffs that "a fiduciary may breach its duty by improperly using fees," but found no breach of fiduciary duty in this case.

The full opinion may be found here: