Jones v. Harris Associates L.P.

PETITIONER:Jerry N. Jones, et al.
RESPONDENT:Harris Associates L.P.
LOCATION:U.S. Capitol Building

DOCKET NO.: 08-586
DECIDED BY: Roberts Court (2009-2010)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 559 US 335 (2010)
GRANTED: Mar 09, 2009
ARGUED: Nov 02, 2009
DECIDED: Mar 30, 2010

Curtis E. Gannon – Assistant to the Solicitor General, Department of Justice, for the United States, as amicus curiae, supporting the petitioners
David C. Frederick – argued the cause for the petitioners
John D. Donovan Jr. – argued the cause for the respondent

Facts of the case

Plaintiffs were investors in several mutual funds managed by Harris Associates. They filed suit in an Illinois federal district court arguing Harris’ fees were too high and thus violated Section 36(b) of the Investment Company Act of 1940. The district court dismissed the case.

On appeal, the U.S. Court of Appeals for the Seventh Circuit affirmed. The court held that Section 36(b) did not permit judicial regulation of mutual fund management fees. It acknowledged that management had a fiduciary duty to investors, but that did not imply judicial regulation of management’s fees was appropriate. Rather, the court stated that market forces were best able to determine the appropriateness of fees.


Did the Seventh Circuit err in holding that claims alleging mutual fund management’s fees were too high is not cognizable under Section 36(b) of the Investment Company Act, when that holding is in conflict with those in three other circuits?

Media for Jones v. Harris Associates L.P.

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

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

John G. Roberts, Jr.:

Justice Alito has our opinion in this morning in case 08-586 Jones versus Harris Associates.

Samuel A. Alito, Jr.:

This case comes to us on writ of certiorari to United States Court of Appeals for the Seventh Circuit.

Section 36B of the Investment Company act of 1940 imposes a fiduciary duty on investment advisors with respect to the receipt of compensation for services provided to the mutual funds they manage.

The petitioners who are shareholders in mutual funds managed by respondent investment advisor filed this suit alleging that respondent violated the fiduciary duty by charging excessive fees.

For the reasons set out in our opinion, we conclude that the appropriate standard for determining whether an investment advisor has violated its fiduciary duty is the standard outlined by the Second Circuit over 25 years ago in Gartenberg versus Merrill Lynch Asset Management Inc.

Under the Gartenberg standard, to be guilty of a violation of section 36B an investment adviser must charge a fee, that is so disproportionately large it bears no reasonable relationship to the services rendered and could not have been the product of arms length bargaining.

This standard reflects the meaning of the term fiduciary duty as described in our analogous cases as well as section 30-6B’s place in the statutory scheme because the Court of Appeals declined to adopt the Gartenberg standard, we vacate and remand for further proceedings.

The judgment of court is unanimous, Justice Thomas has filed a concurring opinion.