The purpose of this paper is to analyze the US Supreme Court's March 30, 2010 decision in Jones v. Harris Associates, LP concerning the evaluation of investment advisory fees under Section 36(b) of the Investment Company Act of 1940.
The paper lays out the background of Section 36(b), the Second Circuit's 1982 decision in Gartenberg v. Merrill Lynch, and the plaintiff's allegation in the Jones case; discusses differences of opinion among the circuit courts on the fiduciary duty standard in Section 36(b); and explains the Supreme Court's reaffirmation of the Gartenberg standard, including a review of Section 36(b) on advisers' fiduciary duty, the role of comparative fees in the Section 36(b) calculus, the role of independent directors, and the dangers associated with judicial review of a board's decision regarding advisory fees.
The Court concluded its opinion by once more endorsing the principles articulated in Gartenberg.
The paper provides practical guidance from experienced securities lawyers.
