In a 2007 decision in Gallus v. Ameriprise Financial (“Gallus”), the District Court for the District of Minnesota granted the defendants’ motion for summary judgment dismissing plaintiffs’ claims in a shareholder suit brought against an investment adviser which alleged excessive advisory fees in violation of Section 36(b) of the Investment Company Act. The district court based its decision on an analysis of the factors cited in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923 (2d Cir. 1982), and held that the plaintiffs had failed to establish a genuine issue of material fact regarding whether the fees charged were so disproportionately large that they bear no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.
On appeal, the Eighth Circuit applied a different Section 36(b) standard, and the United States Supreme Court accepted Gallus for review after agreeing to review another Section 36(b) case, Jones v. Harris Associates, 537 F.3d 728 (7th Cir. 2008) (“Harris Associates”). The Supreme Court then vacated Gallus and remanded the case to the Eighth Circuit for further proceedings in accordance with the Supreme Court’s decision in Harris Associates. (For a more detailed discussion of the prior decisions in Gallus, see the April 14, 2009 Alert and the April 6, 2010 Alert.) The Eighth Circuit, in turn, remanded the Gallus case to the district court.
On December 9, 2010, the district court reinstated its order granting summary judgment to defendants. It found that such a holding was “appropriate,” given the Supreme Court’s decision in Harris Associates which “adopted the Gartenberg framework and reasoning” that the district court used in granting summary judgment. The action thus was dismissed with prejudice.