John Donovan is partner in the litigation department at Ropes & Gray LLP. This post is based on a Ropes & Gray publication by Mr. Donovan, Robert Skinner, and Amy Roy.
On August 25, a federal court in the District of New Jersey issued a much-anticipated decision, finding after a lengthy trial that shareholder plaintiffs failed to prove claims that AXA entities had charged excessive mutual fund management fees in violation of Section 36(b) of the 1940 Act. In the first case to proceed to trial since the U.S. Supreme Court established the legal standard for these claims in its landmark 2010 decision in Jones v. Harris Associates L.P., the New Jersey trial court held in the defendants’ favor on all claims relating to twelve mutual funds operating in a “manager of managers” structure. The plaintiffs’ central theory of liability—mirrored in several other pending cases across the industry—is that AXA improperly retained a significant portion of the management fees despite delegating virtually all of the management responsibilities to external sub-advisers. Based on review of extensive documents and testimony, Judge Peter G. Sheridan rejected the premise of this theory, finding that there was ample evidence that AXA retained responsibility for a range of management services and bore significant risks in its role as fund sponsor and adviser.