Winston & Strawn Discusses Recent Excessive Fees Litigation

This article was originally published on Fund Directions. Any opinions in this article are not those of Winston & Strawn or its clients. The opinions in this article are the authors’ opinions only. 

It was an eventful summer and fall for decisions regarding private right of actions under the Investment Company Act of 1940. Three notable decisions dismissed claims brought under Section 36(b), which expressly provides a private right of action for shareholders to bring claims against mutual fund advisers for breach of fiduciary duty for charging excessive fees. Kennis v. Metropolitan West Asset Management, LLC, 2019 WL 4010747 (C.D.C.A. 2019), In re Davis New York Venture Fund Fee Litig., 2019 WL 2896415 (S.D.N.Y. 2019), and Chill v. Calamos Advisors LLC, 2019 WL 5067746 (S.D.N.Y. 2019) add to the existing body of Section 36(b) law that provides funds, management companies, advisers, and boards with guidance on how to minimize future liability.

While the decisions in Kennis, Davis, and Calamos are insightful in many ways, this article focuses primarily on their analysis of the fund board’s approval of fee arrangements and comparative fee structures.

These decisions provide considerable guidance to mutual fund complexes going forward, including important insight into a board’s process for evaluating and approving the terms of the adviser’s contract as well as the information supplied by the adviser.

Read more about the key takeaways on the decisions of these cases here.