Goodwin Procter litigators won a significant victory before the U.S. Court of Appeals for the Second Circuit on behalf of the independent trustees of a group of mutual funds. The Second Circuit’s decision vindicates the corporate governance rights of the board of a registered investment company organized as a Massachusetts business trust. The court’s ruling addresses the business judgment rule and the independence of mutual fund directors and trustees in the face of shareholder derivative litigation challenging their own conduct.
The court’s decision affirms the dismissal of shareholder derivative claims premised on the trustees’ approval of new investment advisory contracts when the investment adviser was sold as part of a multi-billion dollar transaction. It brings to a close seven years of litigation encompassing five lengthy prior court decisions, including two prior decisions from the Second Circuit, two decisions from the U.S. District Court for the Southern District of New York, and one decision from the Supreme Judicial Court of Massachusetts on a certified question of a novel issue of Massachusetts law.
Before the Second Circuit’s recent ruling, the district court had granted summary judgment to the trustees without permitting the shareholder plaintiff any discovery, on the grounds that there was no genuine dispute that the independent trustees had acted within their business judgment when they concluded, in good faith and after reasonable inquiry, that the lawsuit was not in the business trust’s best interest. The shareholder appealed to the Second Circuit, arguing that disputes about the trustees' independence precluded summary judgment. In its new decision, the Second Circuit rejected all of the plaintiff's arguments and largely adopted our arguments on behalf of the trustees.
The Goodwin team included partners Mike Isenman (who argued the appeal before the Second Circuit) and Willy Jay. Partners Paul Nemser, Phil Newman, Chris Palmer and Jeffrey Simes, and associate David Kantrowitz provided additional assistance at earlier stages of the litigation.
Read more about this recent win in the Goodwin Procter Financial Services Alert.