Publications

In Jones v. Harris Associates L.P., No. 08-586, the Supreme Court unanimously held yesterday that an investment adviser breaches its fiduciary duty in approving fees where it charges “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.”  In the absence of a Supreme Court opinion on the issue, the Second Circuit’s decision in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (2d Cir. 1982), had been relied upon by most lower courts in evaluating whether an investment adviser breached its fiduciary duty under Section 36(b) of the Investment Company Act of 1940.  This consensus approach, however, was recently challenged by the decision of the Seventh Circuit Court of Appeals in this case.  Although the Supreme Court expressly adopted the Gartenberg standard and vacated the Seventh Circuit’s decision, the Court did not provide further guidance regarding how the standard should be applied.