American Century Ordered to Produce Fund Reports for Self-Dealing Suit

In a case accusing American Century Services of loading its retirement plan with its own funds and using share classes of those funds that generated higher fees, a federal district court judge has approved a motion to compel the fund provider to produce profitability, expense and performance reports created under provisions of the Investment Company Act, 15 U.S.C. Section 80a-15(c) (15(c) reports) for funds used in the plan.

American Century opposed this motion, stating the reports sought are not relevant, producing the reports would be unduly burdensome, and the request is disproportional to the needs of the case.

However, Chief U.S. District Court Judge Greg Kays, rejected American Century’s arguments, saying plaintiffs have met their burden by making a threshold showing that the 15(c) reports are relevant to their claims and to the calculation of damages in this case. “The plaintiffs have described with a reasonable degree of specificity the information they hope to obtain from the 15(c) reports and their importance in supporting their claims of breach of fiduciary duty and calculation of damages,” Kays wrote.

Kays also found American Century defendants have not shown producing the 15(c) reports would be unduly burdensome or disproportional to the needs of the case. He notes that the factors outlined in Federal Rule of Civil Procedure 26, which permits discovery of anything “relevant to any party’s claim or defense” in the case, lean in favor of finding the 15(c) reports within the scope of discovery, specifically, the importance these reports have to plaintiffs’ case, the amount in controversy in this case, and that the defendants are the only source of the 15(c) reports. The defendants explanation of the effort to comply with the discovery request, did not persuade the judge that this represents an undue burden.

Kays also noted that plaintiffs’ original request encompassed “all reports” however, in their motion, they limit their request to only “performance, expense, and profitability reports” and only for those mutual funds within the plan. He granted the motion with those limitations.

Former employees of American Century filed the lawsuit in July 2016, and earlier this year, the judge rejected American Century’s argument that all of the plaintiffs’ claims are either barred by the three-year statute of limitations or fail entirely to state a claim for relief, allowing the lawsuit to proceed.