Jones v. Harris Associates L.P. - Oral Argument - November 02, 2009

Jones v. Harris Associates L.P.

Media for Jones v. Harris Associates L.P.

Audio Transcription for Opinion Announcement - March 30, 2010 in Jones v. Harris Associates L.P.

Audio Transcription for Oral Argument - November 02, 2009 in Jones v. Harris Associates L.P.

John G. Roberts, Jr.:

We will hear argument first this morning in Case 08-586, Jones v. Harris Associates.

Mr. Frederick.

David C. Frederick:

Thank you, Mr. Chief Justice, and may it please the Court:

In 1970, Congress amended the Investment Company Act to provide a cause of action when an investment adviser breaches its fiduciary duty with respect to compensation.

The Seventh Circuit upheld summary judgment for Respondent under a legal standard for fiduciary duty that Respondent here no longer defends.

For three reasons, the Seventh Circuit's judgment should be reversed.

First, under the Court's longstanding precedent, in this context a fiduciary duty requires a fair fee, achieved through full disclosure and good-faith negotiation.

Second, the best gauge of a fair fee is what the investment adviser charges at arm's-length in other transactions for similar services.

And, third, applying that standard here, Harris charged twice as much in percentage terms for providing virtually identical advisory services in arm's-length transactions with institutional investors.

With respect to the first point, the standard for fiduciary duty has been clear from this Court's cases, at least since Pepper v. Litton, in which the Court said that a fair result in the circumstances -- a fair fee -- was an important component of a fiduciary duty.

Congress was aware of that standard when it enacted the 1970 amendments to the Investment Company Act.

The SEC brought the case to the Congress' attention, and that standard, we submit, is one that Congress intended to incorporate.

Applying that standard, where Pepper said that the best gauge of a fair fee is what the person -- the fiduciary charges in arm's-length transactions, applied here, the best way to understand how that fiduciary duty is being breached in this context is what Harris is charging for same or similar services at arm's-length to institutional investors.

Anthony M. Kennedy:

Is Harris a fiduciary in the same sense as a corporate officer and a corporate director?

Or does his fiduciary duty differ?

Is it higher or lower, same with a guardian, same with a trustee?

I mean, the word "fiduciary" -- does fiduciary imply different standards, depending on what kind of fiduciary you are?

David C. Frederick:

The basic concept, Justice Kennedy, is the same.

There are two components, where there must be full disclosure of information and a fair result, and that fair result translates in different contexts in different ways.

Here, because of the statutory references to fiduciary duty with respect to compensation, one focuses on the fairness of the fee charged.

But, as Professor Dumont points out in her amicus brief, the idea of a fiduciary duty is one that is well known in various circumstances of the law, and as applied here the concept goes to the fairness of the fee.

Anthony M. Kennedy:

Well, would the test for compensation in this case be the same as any director or any officer of a corporation?

David C. Frederick:

The difference here, Justice Kennedy, is that in those circumstances the indicia of an arm's-length transaction may be achieved.

The directors can fire the head of a company.

They can call for changes.

Here, the investment adviser has appointed the members of the board.

As this Court said in the Daily Income Fund case, the earmarks of an -- of an arm's-length transaction are absent precisely because--

Anthony M. Kennedy:

I just want to know, is the fiduciary duties the same?

Is the fiduciary standard the same, without getting into how its applied?

Is the fiduciary standard the same for Jones, for a guardian, for a trustee, for a corporate officer or a corporate director, always the same?