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AXA Prevails in 36(b) Case

Last week, a New Jersey District Court judge ruled in favor of the defense in a 36(b) case against AXA Equitable.  Plaintiffs in the case alleged that the adviser to the EQ Advisors Trust (FMG) charged “exorbitant” fees for advisory and administrative services, then used sub-advisers and sub-administrators to do the work for “nominal fees.”  The judge found that “Plaintiffs have failed to meet their burden to demonstrate that Defendants breached their fiduciary duty in violation of§ 36(b) of the ICA or have shown any actual damages.”  In the opinion, the judge takes issue with the credibility of a number of the plaintiffs’ witnesses – finding one to be evasive in his answers and another “unprofessional and sarcastic.”  The judge also noted that only one plaintiff testified in the case and no other plaintiffs attended the trial, stating “this lack of attendance demonstrates that Plaintiffs had little interest in the trial or its impact upon them.”

The plaintiffs raised three specific issues with respect to the board of the funds at issue:

  • A conflict existed because the President and CEO of FMG served as the board chair
  • A lack of diversity of the board because all were “Wall Street types”
  • The adviser furnished information to the board, which the board failed to corroborate with third parties or independent consultants.

The judge, however, was not persuaded by these arguments.  The judge found that “the Board's makeup is sufficiently diverse and independent, and the procedures it followed demonstrates that the Board robustly reviewed FMG's compensation.”  The judge found that the testimony of the board’s lead independent director particularly persuasive, calling him “extremely credible.”