On September 3, 2009, the Mutual Fund Directors Forum, the primary voice for independent fund directors, filed its "friend of the court," or amicus, brief in support of the respondent in the Jones v. Harris Associates case before the Supreme Court. In short, the Forum’s brief argues that in reviewing any claim challenging an adviser’s fees, a court should ordinarily defer to a fund board’s decision to approve the advisory contract. While most of the amicus briefs filed with the Court in this case have not focused on on boards' determinations under Section 36(b) of the Investment Company Act, the Forum's brief examines this aspect of the case closely, reviewing the statutory underpinnings behind Section 36(b)’s direction to give the board’s decision to approve an advisory contract “such consideration” as is “deemed appropriate,” and outlines the central role given to directors in the regulatory scheme governing investment companies.
Starting with the legislative history of the Investment Company Act, the Forum's brief shows how Congress intended to interpose independent directors to protect shareholders against excessive advisory fees. The 1970 amendments, which added Section 36(b) to the Act, only strengthened this important role. The brief also details how over the past 10-15 years, the SEC has focused on strengthening boards, emphasizing their independence and giving them the tools necessary to more effectively represent the interests of fund shareholders. The purpose of explaining the legislative history is to illustrate to the Supreme Court that the statutory regime relies upon an independent, engaged and able board. The discussion of the SEC’s actions shows how boards have been supported and empowered to properly fill that role. The Forum's brief argues that boards effectively use a Gartenberg-like approach to determine whether a contract is reasonable from the shareholder’s perspective, and that courts should ordinarily give deference to the conclusions reached by an informed, engaged board. Failing to give a reasoned board determination deference would, in effect, undermine the existing regulatory regime.
Oral arguments before the Supreme Court in the Jones v. Harris Associates case are scheduled for November 2, 2009 at 10:30am. A decision in the case could be issued as early as March of 2010.
The Forum's amicus brief is available at: http://www.mfdf.org/site/pages/documents/MFDFAmicusBriefJonesvHarrisAssociates.pdf
The Forum's press release announcing the filing of its amicus brief is available at: http://www.mfdf.org/documents/JonesPressRelease_001.pdf
The status and filings in the case can be followed at: http://www.scotuswiki.com/index.php?title=Jones%2C_et_al.%2C_v._Harris_Associates
- Jones v. Harris – Summary of SEC’s Amicus Brief, June 19, 2009
- Jones v. Harris – Summary of Plaintiffs’ Brief, June 15, 2009
- Commissioner Paredes Addresses Fund Fee Litigation, May 6, 2009
- Petition to Watch: Jones v. Harris Associates, March 4, 2009
- Jones v. Harris Associates Plaintiffs Appeal to the Supreme Court, November 12, 2008