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Jones v. Harris Associates L.P.

United States Supreme Court
559 U.S. 335 (2010)


The plaintiffs are investors in three mutual funds for which Harris Associates L.P. (Harris Associates) (defendant) served as an investment adviser. The plaintiffs sued Harris Associates alleging that Harris Associates violated its fiduciary duty under § 36(b) of the Investment Company Act (Act) by charging disproportionately large fees that were not within the range of what would be negotiated in an arm’s length transaction. The District Court for the Northern District of Illinois relied upon Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923 (C.A.2 1982), in granting summary judgment to Harris Associates. The District Court compared the fees Harris Associates charged the mutual funds with what it charged other clients. It also compared what Harris Associates charged the mutual funds with what other investment advisers charged similar mutual funds. The Court of Appeals for the Seventh Circuit affirmed but criticized the reasoning in Gartenberg. It reasoned that as long as a fiduciary provides full disclosure and does not mislead the mutual fund, there is no cap on compensation. The Court of Appeals also rejected the District Court’s fee comparisons. This Court granted certiorari to determine the proper standard under § 36(b).

Rule of Law


Holding and Reasoning (Alito, J.)

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