The Supreme Court yesterday denied the petition for review in Schwab Investments, et al. v. Northstar Financial Advisers. As a result, the 9th Circuit's decision allowing fund boards to be sued directly by shareholders for breach of contract based on statements in a fund’s registration statements will stand in that jurisdiction.
The Forum had filed a “friend of the court” brief urging the Supreme Court to review the case, arguing that it "represents a dangerous departure from decades of legislation and jurisprudence." The brief noted that the decision “is certain to yield a patchwork of conflicting obligations under the laws of different jurisdictions and to increase the costs of mutual fund operations – all to the detriment of investors to whom those costs will be passed in the form of higher fees and expenses.”
The case will now be remanded to the district court to resolve issues left unanswered by the Ninth Circuit's decision related to whether the litigation is barred under the Securities Litigation Uniform Standards Act. For more information on the impact of the decision on directors, see the Forum’s recent webinar Considerations for Directors in Light of Northstar Financial.