John Coates reports on an amicus brief filed by 25 law professors in the Jones v. harris case pending before the SCOTUS:
The Harris case is an appeal of the Seventh Circuit, in an opinion written by Judge Frank Easterbrook, noted previously on this blog here and here. That decision upheld the trial court’s dismissal of the case against Harris Associates, a mutual fund advisor, on the ground that as long as a mutual fund adviser does not breach the fiduciary duty owed to shareholders by failing to disclose all pertinent facts or otherwise hindering the fund’s directors from negotiating a favorable price, no judicial review of the reasonableness of the adviser’s fee is required to dismiss a claim under Section 36(b) of the Investment Company Act (ICA). ...
The scholars’ amici curiae brief, filed in support of the defendant’s position, (1) addresses misperceptions regarding competition in the mutual fund industry today, (2) reviews facts about the industry that demonstrate that competition for investors is now an important force that constrains mutual fund advisory fees, and (3) suggests that the Supreme Court, in articulating the legal standard applicable to an assessment of whether mutual fund advisory fees are excessive under Section 36(b) of the ICA, should specify that two sets of facts relating to competition and advisory fees should be considered: (a) evidence of competition for investors by funds similar to the type of fund at issue; and (b) evidence of the extent to which such competition constrains the fees charged by the adviser and approved by the fund’s directors, and whether that competition is likely to produce fees similar to those generated by arm’s-length bargaining. Information about competition, the brief suggests, should inform the decisions of independent directors, evaluating advisory fees in the first instance, and of courts in the event of a fee challenge.
