Litigation Team Prevails for Ameriprise in Eighth Circuit Court of Appeals

In The News
April 2, 2012
In a major victory for Ropes & Gray client Ameriprise and the mutual fund industry as a whole, the U.S. Court of Appeals for the Eighth Circuit on March 30 unanimously upheld the entry of summary judgment in favor of Ameriprise and rejected plaintiffs’ attempts to expand the reach of excessive fee claims under § 36(b) of the Investment Company Act of 1940.

In the first significant appellate interpretation of the Supreme Court’s landmark Jones v. Harris Associates ruling, the Eighth Circuit reaffirmed that the sole basis for liability under § 36(b) is a fund fee that is “so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.”

Jones thus definitively closed the door on plaintiffs’ alternative theory that a trial is warranted based on arguments of a supposedly “flawed” fee approval process, without regard to the size of the fee. In a unanimous opinion issued two years to the day after Jones, the Eighth Circuit affirmed the renewed entry of summary judgment and held plaintiffs did not demonstrate the fees Ameriprise charged were a breach of its fiduciary duty. To read the opinion in its entirety, please click here.

“This ruling clearly affirms the soundness of the Supreme Court’s decision in Jones v. Harris, much to the satisfaction of our client and to mutual fund advisers across the industry,” said Rob Skinner, who argued on behalf of Ameriprise before the Eighth Circuit. “In a post-Jones environment, this ruling should provide an additional measure of protection to mutual advisers who are threatened with baseless excessive fee claims under 36(b).”

In 2004, mutual fund shareholders sued Ameriprise claiming its advisory and 12b-1 distribution fees were excessive and in breach of the “fiduciary duty with respect to the receipt of compensation” imposed by § 36(b). The plaintiffs argued that Ameriprise’s fees were too high because Ameriprise charged institutional clients less. Plaintiffs also claimed Ameriprise was liable because it allegedly did not give the funds’ directors adequate information about the comparison. But the Eighth Circuit then reviewed the evidence about the fund board’s approval of the fee contract and concluded that despite the plaintiffs’ arguments of an inadequate information flow, the directors’ “process can fairly be described as robust.”

The Ropes & Gray team that represented Ameriprise was led by Boston-based securities litigation partners John Donovan and Rob Skinner and Washington, D.C.-based complex business litigation partner Douglas Hallward-Driemeier.