WOLLMAN, Circuit Judge.
This appeal requires us to reconsider whether the mutual fund shareholder plaintiffs have set forth sufficient evidence to survive summary judgment on their claim that the mutual fund adviser defendants breached the "fiduciary duty with respect to the receipt of compensation for services" that is imposed by § 36(b) of the Investment Company Act of 1940(ICA), 15 U.S.C. § 80a-35(b). In light of the United States Supreme Court's decision in Jones v. Harris Associates L.P., ___ U.S. ___,
The factual background is fully set forth in our prior panel decision, Gallus v. Ameriprise Financial, Inc., 561 F.3d 816 (8th Cir. 2009). The plaintiffs are shareholders of nine mutual funds (the Funds) that are registered investment companies under the ICA. The Funds are managed and distributed by affiliates of the defendants (collectively, Ameriprise). The complaint alleged that Ameriprise breached its fiduciary duty under § 36(b) of the ICA. Section 36(b) places the burden of proving a breach of fiduciary duty on the plaintiff and further provides, in part:
15 U.S.C. § 80a-35(b). We summarized the plaintiffs claims as follows: (1) the fee negotiation was flawed because it was based on external factors—namely the fee agreements of similar mutual funds in the market; (2) Ameriprise provided comparable advisory services to institutional, non-fiduciary clients at substantially lower fees than it charged the plaintiffs; and (3) Ameriprise misled the Fund's board of directors (the Board) about its arrangements with non-fiduciary clients to prevent the Board from questioning the higher fees charged to the plaintiffs. Gallus, 561 F.3d at 818.
In its first decision, the district court granted summary judgment in favor of Ameriprise, holding that the plaintiffs failed to set forth a genuine issue of material fact that the fees Ameriprise charged "were so disproportionately large that they bear no reasonable relationship to the services rendered and could not have been the product of arm's-length bargaining." D. Ct. Order of July 10, 2007, at 20. In doing so, the district court applied the standard set forth in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923 (2d Cir. 1982), and considered the factors enumerated therein.
We reversed. We concluded that although "the Gartenberg factors provide a useful framework for resolving claims of excessive fees," excessive fees were not the only way in which a fund adviser can breach its fiduciary duties. Gallus, 561 F.3d at 822. We held that § 36(b) "impose[d] on advisers a duty to be honest and transparent throughout the negotiation process." Id. at 823. Accordingly, we concluded,
Id. Moreover, we instructed the district court to determine "whether Ameriprise purposefully omitted, disguised, or obfuscated information that it presented to the Board about the fee discrepancy between different types of clients." Id. at 824. Ameriprise petitioned for a writ of certiorari.
While the first appeal was pending before our court, the Supreme Court granted certiorari in Jones v. Harris Associates L.P., to consider "what a mutual fund shareholder must prove in order to show that a mutual fund investment adviser breached the `fiduciary duty with respect to the receipt of compensation for services'" under § 36(b). 130 S.Ct. at 1422 (quoting § 36(b)). After our decision was filed, the Court issued its decision in Jones and thereafter granted Ameriprise's petition, vacated our panel opinion, and remanded the case to us for further consideration in light of Jones. Ameriprise Fin., Inc. v. Gallus, ___ U.S. ___, 130 S.Ct. 2340, 176 L.Ed.2d 559 (2010). In turn, we remanded the case to the district court, which reinstated its earlier decision and reentered judgment in favor of Ameriprise. D. Ct. Order of Dec. 10, 2010.
In Jones, the Supreme Court concluded that "Gartenberg was correct in its basic formulation of what § 36(b) requires: 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." 130 S.Ct. at 1426. The Court adopted the meaning of fiduciary duty set forth in Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939). When reviewing a claim for breach of fiduciary duty, "[t]he essence of the test is whether or not under all the circumstances the transaction carries the earmarks of an arm's length bargain." Jones, 130 S.Ct. at 1427 (quoting Pepper, 308 U.S. at 306-07, 60 S.Ct. 238) (emphasis omitted). Accordingly, all relevant circumstances must be taken into account, and the benchmark for reviewing challenged fees is "the range of fees that might result from arm's-length bargaining." Id. (citing Gartenberg, 694 F.2d at 929).
The Supreme Court found that "Gartenberg's approach also reflects § 36(b)'s place in the statutory scheme[.]" Id. Gartenberg directs courts to consider the conscientiousness of the board of directors in its decision to approve the adviser's fee, 694 F.2d at 930, and the ICA instructs courts to give the board's approval of adviser compensation "such consideration... as is deemed appropriate under all the circumstances[,]" 15 U.S.C. § 80a-35(b)(2). From the statutory language, the Supreme Court drew the following inferences: "[A] measure of deference to a board's judgment may be appropriate in some instances," but "the appropriate measure of deference varies depending on the circumstances." Jones, 130 S.Ct. at 1428. We thus give deference to the board's approval "[w]here a board's process for negotiating and reviewing investment-adviser compensation is robust[.]" Id. at 1429. Where, however, "the board's process was deficient or the adviser withheld important information, the court must take a more rigorous look at the outcome." Id. at 1430. Although § 36(b) is "sharply focused" on whether the fees are excessive, we evaluate the fee-negotiation process to determine the degree of deference that is due a board's decision to approve the adviser's fees. Id. (quoting Migdal v.
The Supreme Court also clarified that comparisons between the fees that an adviser charges its institutional clients and the fees it charges its mutual fund clients may be relevant. "[C]ourts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but courts must be wary of inapt comparisons." Jones, 130 S.Ct. at 1428. In a footnote, the Court allayed the advisers' concerns that such comparisons will "doo[m] [a]ny [f]und to [t]rial." Id. at 1429 n. 8 (quoting Br. for Respondent) (alterations in Jones). "Only where plaintiffs have shown a large disparity in fees that cannot be explained by the different services in addition to other evidence that the fee is outside the arm's-length range will trial be appropriate." Id. By the same token, the Court warned against relying too heavily on the fees charged to mutual funds by other advisers, noting that those fees might not have been the product of negotiations conducted at arm's length. Id. at 1429.
This appeal requires us to review de novo the district court's grant of summary judgment in favor of Ameriprise. See Ferguson v. United States, 484 F.3d 1068, 1072 (8th Cir. 2007) (standard of review). To do so, we must determine whether plaintiffs have raised a genuine issue of material fact that Ameriprise charged "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." Jones, 130 S.Ct. at 1426. As explained more fully below, we conclude that the plaintiffs have failed to meet that burden.
Jones has altered the way in which we determine whether an adviser has breached its fiduciary duty under § 36(b). In our previous decision, we held that "the proper approach to § 36(b) is one that looks to both the adviser's conduct during negotiation and the end result. Unscrupulous behavior with respect to either can constitute a breach of fiduciary duty." Gallus, 561 F.3d at 823 (citation omitted). The plaintiffs urge us to forego reconsideration of that holding, but after Jones, a process-based failure alone does not constitute an independent violation of § 36(b). Instead, we have been instructed that § 36(b) "is sharply focused on the question of whether the fees themselves were excessive." Jones, 130 S.Ct. at 1430 (quoting Migdal, 248 F.3d at 328, and citing 15 U.S.C. § 80a-35(b) (imposing a "fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature" (emphasis added in Jones))).
In evaluating an investment adviser's fiduciary duty, we continue to "take into account both procedure and substance." Id. at 1429. The fee-negotiation process remains crucially important, as it allows the court to determine the amount of deference to give the board's decision to approve the fee. If "the disinterested directors considered the relevant factors, their decision to approve a particular fee agreement is entitled to considerable weight, even if a court might weigh the
We fully considered the fee-negotiation process between the Board and Ameriprise in our prior panel opinion, albeit without the guidance of Jones. The record reflected that the negotiation focused on the advisory fees charged by peer mutual funds and that the outcome was "a fee arrangement that, broadly speaking, was comparable to the rates paid by shareholders of other mutual funds throughout the industry." Gallus, 561 F.3d at 819. We recounted the information that had been provided to the Board, "including reports on the services provided to the Funds, the personnel providing those services, the investment performance of the Funds, and the profit Ameriprise derived from the Funds." Id. at 818. We also reviewed the Board's requests for further data and Ameriprise's response. For example, after the Board became aware of the comparatively lower fees Ameriprise charged its institutional clients, it requested a report explaining the similarities and differences between the two types of accounts. This report, entitled the San Diego Office Review, compared the fee structures of Ameriprise's mutual funds and its institutional accounts. The Board thus considered the relevant factors, and its process can fairly be described as robust.
Notwithstanding the Board's efforts, there remains the question of the deference to be accorded its decision in light of the fact that the Board was not apprised of all relevant information regarding the fee discrepancy between Ameriprise's mutual fund and institutional clients. The plaintiffs further maintain that the Board's process was flawed because the Board relied too heavily on a comparison between Ameriprise's fees and those charged by other advisers. Jones cautioned courts that such comparisons are problematic because the comparison fees, "like those challenged, may not be the product of negotiations conducted at arm's length." 130 S.Ct. at 1429. In light of these circumstances, less deference is given to the Board's judgment than would have been the case had Ameriprise been candid about the fees it charged its clients and had the Board not focused primarily on tethering the fees to the industry median.
We turn then to the comparison between the fees charged to Ameriprise's mutual fund clients and the fees charged to its institutional clients. The plaintiffs argue that such a comparison is probative and that the disparity in fees is evidence that Ameriprise charged excessive fees to its mutual fund clients. Ameriprise contends that the comparison has no factual predicate and thus is not relevant. Although the disparity in fees charged to Ameriprise's different clients is likely relevant to whether the fees fall within the arm's length range, see Gallus, 561 F.3d at 824, the plaintiffs have failed to set forth the additional evidence required to survive
The plaintiffs maintain that they presented additional evidence in the following categories to show that the fees are beyond the arm's length range: Ameriprise retained the economies of scale it realized from the Funds; Ameriprise recognized excessive "fall out" financial benefits from its relationship with the Funds;
The plaintiffs also argue that the flawed fee-negotiation process constitutes additional evidence that the fees are outside the arm's length range. As set forth above, any deficiencies in the process affects the amount of deference we give to the board's decision to approve the adviser's fee. Where the negotiations were flawed, Jones also requires courts to "take a more rigorous look at the outcome." 130 S.Ct. at 1430. We do not read Jones to allow a deficient process to be the additional evidence required to survive summary judgment, however, because the opinion's language again focuses on evidence that the fee is outside the arm's length range. Id. at 1429 n. 8 ("Only where plaintiffs have shown a large disparity in fees that cannot be explained by the different services in addition to other evidence that the fee is outside the arm's-length range will trial be appropriate.") (emphasis added).
The plaintiffs' final argument with respect to the adviser fees is that the district court failed to subject the fees to the greater scrutiny required when the fee-negotiation process is deficient. Although the district court did not reconsider the similarities and differences between Ameriprise's mutual fund and institutional clients, that analysis is not dispositive to the outcome of the case because the plaintiffs failed to set forth additional evidence that the fees were outside the arm's length range. We conclude that, when considered in the light of Jones, the district court's initial review of the other relevant circumstances and the disputed fees themselves was sufficiently detailed to constitute a "rigorous look at the outcome," 130 S.Ct. at 1430, and that there is thus no need to remand for further proceedings.
Section 12b of the ICA mandates that an investment company acting as a distributor of its own securities comply with the rules and regulations promulgated thereunder by the Securities and Exchange Commission (SEC). 15 U.S.C. § 80a-12(b). Under SEC Rule 12(b)(1), Ameriprise is held to the fiduciary standard set forth in § 36(b) when, in accordance with the law, it compensates underwriters, dealers, and
The judgment is affirmed.