The Seventh Circuit Court of Appeals recently added the likely final chapter in the Jones v. Harris case. The Supreme Court decided the case in March 2010, unanimously embracing the Gartenberg standard regarding the process followed by mutual fund directors in assessing the fees their funds pay for investment advice. The Court held that “to face liability under § 36(b), an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.” The Court remanded the case to the Seventh Circuit to apply the ruling.
In a decision released last week, the Seventh Circuit found that the fees charged by Harris Associates “was comparable to that produced by bargaining at other mutual fund complexes.” Further the circuit court found “that the undisputed evidence showed that Harris delivered value for the money; the fund it was advising did as well as, if not better than, comparable funds.” On the question of the fees that Harris charged to its non-fund clients, the court found “no evidence that might justify a further inquiry under the Supreme Court’s approach” in light of the fact that the plaintiffs had not produced any evidence showing that the other clients received the same services or that Harris incurred the same fees in serving those clients.
The unusual five-year delay in this chapter of the case was apparently accidental. The Seventh Circuit apologized to the parties to the suit, explaining that “the papers were placed in the wrong stack and forgotten.” The system the court uses to track cases was not set up to follow cases on remand from the Supreme Court, an issue the court promised to remedy. According to a post on the Fundlaw newsgroup, John Baker notes that the plaintiffs in the case are reportedly considering requesting a rehearing by the full Seventh Circuit.