Alert March 10, 2009

Supreme Court to Review Seventh Circuit Decision Rejecting Gartenberg Analysis in Excessive Fee Suit Against Mutual Fund Adviser

The US Supreme Court has agreed to review the decision by the US Court of Appeals for the Seventh Circuit (the “Seventh Circuit”) in Jones v. Harris Associates L.P., 527 F.3d 627 (7th Cir. 2008) (“Harris Associates”), an excessive fee suit brought under Section 36(b) of the Investment Company Act of 1940, as amended (the “1940 Act”), against an adviser (the “Adviser”) for registered open-end funds (the “Funds”) in which the plaintiffs had invested.  As discussed in the June 3, 2008 Alert, Harris Associates affirmed the suit’s dismissal by the US District Court for the Northern District of Illinois (Eastern Division).  Although it affirmed the District Court’s decision, Harris Associates expressly rejected the multi‑factor analysis for suits under Section 36(b) of the 1940 Act established by the US Court of Appeals for the Second Circuit in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923 (2d Cir. 1982).  By a unanimous vote, a panel of Seventh Circuit denied a petition for rehearing of its decision in Harris Associates (as discussed in the August 19, 2008 Alert).  A request for rehearing en banc was also narrowly denied, occasioning a dissent by one of the Seventh Circuit’s leading judges.  The split in authority among the circuits on this issue created by Harris Associates was the basis for the plaintiffs’ request for Supreme Court review.