In Fees’ Favor

A federal appellate court reversed its stance in a case alleging Ameriprise charged mutual fund investors excessive fees.

In its second review of the case, the 8th U.S. Circuit Court of Appeals upheld a district court finding that the plaintiffs—investors in nine mutual funds managed and distributed by Ameriprise—failed to set forth a genuine issue of material fact that the fees the company 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.”   

The appellate court previously determined that the lower court mistakenly rejected a comparison between fees charged to its mutual fund shareholders—to whom Ameriprise owed a fiduciary duty—and nonfiduciary institutional clients. In addition, it instructed the district court to determine whether Ameriprise purposefully omitted, disguised or obfuscated information about the fee discrepancy between different types of clients.

However, following that decision, the U.S. Supreme Court granted Ameriprise’s petition for certiorari, vacated the 8th Circuit’s opinion and remanded the case to the appellate court for further consideration in light of the high court’s decision in Jones v. Harris Associates L.P. In that case, the court found that even if the process of approving the fees was flawed—either because the investment fund board’s process was deficient or because the adviser withheld material information—it must “take a more rigorous look at the outcome” and give less deference to the board’s decision to approve the adviser’s fees.

In the second appeal, the 8th Circuit concluded 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”  and that there was, thus, no need to remand for further proceedings. The plaintiffs argued that Ameriprise’s 12b-1 fees violated  
§ 36(b) of the Investment Company Act, but they failed to show that the fees were outside “the range of what would have been negotiated at arm’s-length in the light of all of the surrounding circumstances,” the court found.