KASILAG et al v. HARTFORD INVESTMENT FINANCIAL SERVICES, LLC
OPINION. Signed by Judge Renee Marie Bumb on 2/28/2017. (tf, )
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[Dkt. No. 236]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
JENNIFER L. KASILAG, et al.,
Civil No. 11-1083 (RMB/KMW)
HARTFORD INVESTMENT FINANCIAL
JENNIFER L. KASILAG, et al.,
Civil No. 14-1611 (RMB/KMW)
HARTFORD FUNDS MANAGEMENT
JENNIFER L. KASILAG, et al.,
JENNIFER L. KASILAG, et al.,
Civil No. 15-1876 (RMB/KMW)
HARTFORD FUNDS MANAGEMENT
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BUMB, United States District Judge:
This case was brought pursuant to Section 36(b) of the
Investment Company Act of 1940.
Plaintiffs are shareholders in
six mutual funds (the “Funds”) managed by Defendants Hartford
Investment Financial Services, LLC and Hartford Funds Management
Company, LLP (the “Defendants”).
Beginning November 9, 2016 and concluding November 16,
2016, the Court conducted a four-day bench trial.
the parties submitted proposed findings of fact and post-trial
On February 1, 2017, the Court heard closing arguments
from the parties.
At that time, the Court reserved judgment.
This Opinion sets forth the findings of fact and conclusions of
law of the Court.1
This case was tried pursuant to Section 36(b) of the
Investment Company Act of 1940.
Section 36(b) imposes a
“fiduciary duty” on investment advisers with respect to the
compensation they receive for providing services to mutual
15 U.S.C. § 80a-35(b).
The most recent Supreme Court
case to interpret this statute, Jones v. Harris Associates L.P.,
559 U.S. 335 (2010) interpreted an earlier Second Circuit
decision in Gartenberg v. Merrill Lynch Asset Management, Inc.,
The Court compliments counsel on their professionalism and
excellent advocacy throughout the course of these proceedings.
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694 F.2d 923 (2d Cir. 1982).
In so doing, Jones resolved a
split among the Courts of Appeals over the proper standard under
Specifically, the Jones Court held that in order to
face liability under Section 36(b), the investment adviser’s fee
must be so disproportionate that it does not bear a reasonable
relationship to the service the defendant rendered and could not
have been negotiated at arm’s-length.
Jones, 559 U.S. at 344.
In essence, that is the fundamental inquiry underlying the trial
that this Court examined.
In applying this overarching standard, courts look to the
multifactor test outlined in Gartenberg.
Those factors are:
“(1) the nature and quality of the services provided by the
adviser to the shareholders; (2) the profitability of the mutual
fund to the advisers; (3) “fall-out” benefits; (4) the economies
of scale realized by the adviser; (5) comparative fee structures
with similar funds; and (6) the independence and
conscientiousness of the independent trustees.”
Supp. 2d at 979.
Gallus, 497 F.
It is important to note that the Gartenberg
factors embody a non-exclusive list of considerations.
should instead consider “all relevant circumstances.”
347 (citing Gartenberg, 694 F.2d at 929); see also Sivolella v.
AXA Equitable Life, Civ. A. No. 11-cv-4194 (PGS)(DEA), 2016 WL
4487857, at *4 (“The Court weighs all of the evidence presented
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and the gravity of each factor adjudicate the case.” (citation
It is also important to note that “the standard for
fiduciary breach under Section 36(b) does not call for judicial
second-guessing of informed board decisions.”
at 1429 (citations omitted).
Jones, 130 S. Ct.
Put differently, the Gartenberg
multifactor standard reflects Congress’s decision to “rely
largely upon independent director ‘watchdogs’ to protect
Id. (citations omitted).
“the disinterested directors considered the relevant factors,
their decision to approve a particular fee agreement is entitled
to considerable weight, even if a court might weigh the factors
Jones, 559 U.S. at 351.
Nevertheless, a fee may
still “be excessive even if it was negotiated by a board in
possession of all relevant information, but such a determination
must be based on evidence that the fee is so disproportionately
large that it bears no reasonable relationship to the services
rendered and could not have been the product of arm’s-length
Jones, 559 U.S. at 351 (quoting Gartenberg, 528 F.
Supp. at 928).
This Court first addressed the evidence in this case at
Upon the showing that was put forward at that
time, the Court identified several issues that were not in
dispute to limit the issues to be resolved at trial.
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first analyzed the evidence as it related to the Board approval
of the fees.
Consistent with Jones’s instruction to give
considerable weight to a disinterested approval, and viewing the
facts under the requisite standard, this Court held that the
independent director’s approval was entitled to substantial
Nevertheless, as cautioned above, a determination of an
informed and disinterested Board is entitled to considerable,
but not conclusive weight.
Consequently, the Court also looked
to the Gartenberg multifactor analysis to determine if there
existed a triable issue of fact under those factors and Jones’s
Due to the presence of disputed facts, the Court
ruled that Defendants’ motion for summary judgment should be
Op. 54 (“[W]hile the Board’s process is entitled to
substantial weight, disputed facts permeate the Gartenberg
Therefore, a grant of summary judgment in favor of
either party would be improper.”).
As the Court’s summary judgment Opinion set forth, much of
Plaintiffs’ argument seeking to undermine the Board’s decision
hinged on “captious nitpicking.” Op. 40 [ECF No. 40]. The
Court’s ruling that the approval was entitled to substantial
weight is, of course, consistent with the notion that
disinterested Board approval may be given considerable weight.
Jones, 559 U.S. at 351.
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In so ruling, the Court held that five Gartenberg factors
remained in genuine dispute.3
The Court at that time noted that
it did not expect the trial would be a “far-flung foray into the
annals of accounting procedures or mutual fund administration,”
as discovery was.
Instead, the Court believed an adequate trial
would resolve these remaining, narrow factual disputes:
The nature of the services provided by the Hartford
Defendants with regard to the Funds.
The quality of the services provided, as measured by the
performance of the Funds.
The profitability of the Funds, including testimony
concerning the proper method of accounting for sub-adviser
What, if any, fall-out benefits existed and their
Whether economies of scale were realized and the extent to
which those realized economies of scale were passed along
to the Funds.
What comparative fee structures indicate about the size of
Id. at 53-54.
These were fundamentally the grounds upon which
the Court proceeded at trial.4
The only factor that was not genuinely disputed was the
independence and conscientiousness of the trustees, which
dovetailed with the Court’s analysis of the Board’s process.
4 The Court notes that, although the trial was limited to these
issues, the parties engaged in a much broader trial. In an
abundance of caution, and consistent with the relevant case
law’s instruction to consider all relevant circumstances, the
Court permitted this latitude to the parties.
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STANDARD OF PROOF
Plaintiffs must meet the burden of proving their case by a
preponderance of the evidence.
“That means Plaintiffs have to
prove that their claims are more likely than not . . . .
it differently, if one puts the evidence favorable to Plaintiffs
and the evidence favorable to Defendants on opposite sides of
the scales, Plaintiffs would have to make the scales tip
somewhat to their side. If Plaintiffs fail to meet this burden,
the verdict must be for Defendants.”
See Model Jury Charge
1.10, “Preponderance of the Evidence,” available at
http://www.ca3.uscourts.gov/model-civil-jury-table-contents-andinstructions (July 2015); see also Sivolella, 2016 WL 4487857,
III. FACTUAL FINDINGS5
A. Background Facts
Plaintiffs are shareholders in six mutual funds.6
Stip. of Facts (“JSOF”) ¶ 1.
Each of the Funds is a series of
The Court’s recitation of these facts constitutes its findings
of fact for this trial.
6 The Funds are: (1) the Hartford Balanced Fund; (2) The Hartford
Capital Appreciation Fund; (3) The Hartford Floating Rate Fund;
(4) The Hartford Growth Opportunities Fund; (5) The Hartford
Healthcare Fund; and (6) The Hartford Inflation Plus Fund. JSOF
¶ 1. Plaintiffs are: (1) Jennifer Kasilag, who has been a
shareholder in the Hartford Healthcare Fund since at least
January 1, 2010; (2) Louis Mellinger, who has been a
shareholder in the Hartford Growth Opportunities Fund and the
Hartford Inflation Plus Fund since at least January 1, 2010; (3)
Judith Menendez, who has been a shareholder in the Hartford
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Pursuant to Investment Management Agreements (the “IMAs”)
with the Funds, Defendants serve or served as investment
managers for the Funds. See, e.g., JX-93; JX-144.
Defendant Hartford Investment Financial Services, LLC (“HIFSCO”)
served as investment manager until December 31, 2012.
Defendant Hartford Funds Management Company, LLC (“HFMC”)
then has served as investment manager since January 1, 2013.
Id. ¶ 27.
The parties agree that under the IMAs, Defendants are
Provide investment advice to the Funds with respect to
each Fund’s investment policies, investments, and
purchase and sale of securities;
Continuously supervise each Fund’s investment program
Provide economic and statistical data and other
information relating to each Fund to the Funds’ Board
of Directors; and
“[P]erform . . . such other duties as may be necessary
or appropriate in connection with its services as
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Defs.’ Prop. Findings of Fact [ECF No. 235] and Pls.’ Resps.
[ECF No. 241] ¶ 10 (hereinafter, “DPFOF & PR ¶ ___.”); see also
JX-144 §§ 1, 2.
The IMAs also state that the Defendants shall
“perform, or shall cause an affiliate to perform” a series of
Assist[ing] in the supervision of all aspects of the
Company’s operation, including the coordination of all
matters relating to the functions of the custodian,
transfer agent or other shareholder servicing agents
(if any), accountants, attorneys and other parties
performing services or operational functions for the
Provid[ing] the Company with the services of a person,
who may be the Adviser’s officers or employees,
competent to serve as officers of the Company and to
perform such administrative and clerical functions as
are necessary in order to provide effective
administration for the Company, including the
presentation and maintenance of required reports,
books and records of the Company; 
Provid[ing] the company with adequate office space and
related services necessary for its operations as
contemplated in [the IMA;] [and]
Provid[ing] such other services as the parties hereto
may agree upon from time to time.
JX-144 § 3.
i. The Funds’ Fee System
Pursuant to the IMAs, Defendants received an investment
management fee from each Fund calculated based on a percentage
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of each Fund’s average daily AUM.7
JSOF ¶ 30.
The fee schedule
associated with calculating the fee contained various discounts
(“breakpoints”) as the asset level under management grew.
instance, with regard to the Hartford Capital Appreciation Fund,
the fee was scheduled at .8000% for the first $500 million under
management, but for assets of $500 million to $1 billion, the
fee decreased to .7000%.
Id. ¶ 31.
Based on the AUM, the gross
investment management fees paid by the Hartford Capital
Appreciation Fund ranged from .6520% to .6570% between 2010 and
Id. ¶ 33.
The gross management fee collected by Defendants and paid
by the Funds are set forth on the below table:
Pls.’ Prop. Findings of Fact [ECF No. 237] & Defs.’ Resps. [ECF
No. 240-1] ¶ 71 (hereinafter, “PPFOF & DR ¶ ___.”).9
A table outlining the investment management fee schedule for
each fund can be found in the Joint Stipulation of Facts at
8 The remaining gross investment management fee schedules can be
found in the Joint Stipulation of Facts at Paragraphs 32 through
9 Although the parties generally agree that the amounts contained
in the above table represent the gross management fees collected
by Defendants during the years 2010 to 2013, they disagree
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Defendants were paid $670,253,000 in gross management fees
across the six at-issue funds in the above-listed four years.
Use of Sub-Advisory Services
Much of the core of the case comes down to Defendants’ use
of sub-advisers to meet a portion of their obligations under the
The parties agree, however, that the use of sub-advisers
is not unusual.
DPFOF & PR ¶ 24.
Indeed, the IMAs specifically
contemplated that Defendants might seek to make use of subadvisers to meet their obligations under the agreements:
The Adviser, upon approval of the Board of Directors,
may engage one or more investment advisers that are
registered as such under the Investment Advisers Act of
1940, as amended, to act as sub-adviser with respect to
existing and future Portfolios of the Company.
responsibilities and obligations of the Adviser pursuant
to this Investment Management Agreement as shall be
delegated to the sub-adviser or sub-advisers, and the
Adviser will supervise and oversee the activities of any
In addition, the
such sub-adviser or sub-advisers.
Adviser may subcontract for any of the administrative
services set forth in Section 3 above.
whether the sub-advisory fee was paid out of the Funds’ assets.
PPFOF & DR ¶ 71. As this is a relatively meaningful
distinction, insofar as it colors the Courts’ treatment of subadvisory expenses, the Court notes here that it finds that the
sub-advisory fee was not paid out of the Funds’ assets, but
rather out of the Defendants’ assets pursuant to the subadvisory agreements. See, e.g., JX-703 § 7(c) (“The Sub-Adviser
will not be entitled to receive any payment for the performance
of its services hereunder from the Portfolios.”).
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JX-144 § 4.
Consistent with this section of the IMAs, for all
years at issue, Defendants made use of Wellington Management
Company, LLP (“Wellington”) to act as a sub-adviser for some of
JSOF ¶ 38.
Further, during a limited period of
time, Defendants also made use of HIMCO to act as a sub-adviser
for some of the Funds, although Wellington ultimately took over
With the exception of fee schedules, the terms of
the sub-advisory agreements are substantively identical.
Additionally, the parties agree that “Wellington is a
highly respected sub[-]adviser that Hartford has had a
relationship with for over 30 years.”
DPFOF & PR ¶ 19; see also
Trial Tr. 785:13-17 (Meyer Testimony).
Wellington, like Defendants, was compensated with a
sliding-scale fee schedule that made use of breakpoints for all
but two Funds, which were sub-advised on a flat rate (Hartford
Capital Appreciation Fund and Hartford Growth Opportunities
For example, while the fee rate for the first $50
million in assets under management was .220% for the Hartford
The precise breakdown of the years during which HIMCO operated
as a sub-adviser can be found in the Joint Statement of Facts at
Paragraphs 38 through 44. Ultimately, Wellington took over for
HIMCO on all of HIMCO’s funds in 2012. JSOF ¶¶ 40-41.
11 By contrast, HIMCO’s sub-advisory expenses were paid in an
agreement whereby Defendants were obligated to pay HIMCO “the
amount of all direct and indirect expenses incurred in
connection with the performance of [HIMCO’s] duties under [the
sub-advisory agreement].” JSOF ¶ 45.
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Balanced Fund, which made use of breakpoints, the gross
management fee rate paid in 2010 was .1510%.
JSOF ¶ 48.
Defendants are contractually responsible for the payment of
these fees, not the Funds.
JX-703 (“As compensation for the
performance of the services by the Sub-Adviser hereunder, the
Adviser shall pay to the Sub-Adviser, as promptly as possible
after the last day of each calendar year quarter, a fee accrued
daily and paid quarterly . . . .”); see also id. § 7(c) (“The
Sub-Adviser will not be entitled to receive any payment for the
performance of its services hereunder from the Portfolios.”).
The below table sets forth the fees that were paid to the
sub-advisers by Defendants:
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PPFOF & DR ¶ 76.12
In the aggregate, Defendants incurred
$223,560,000 in sub-advisory expenses across the six at-issue
funds during the above-listed four-year period.13
B. Services Provided by the Defendants
i. Testimony of Vernon Meyer
To this day, Defendants provide a series of services to the
Vernon Meyer was called during Defendants’ portion of
the case to testify to the specific services the Defendants
Mr. Meyer works with the Hartford Funds as the Chief
Investment Officer and Head of Product.
Trial Tr. 708:24-25.
As Chief Investment Officer, he and his team are responsible for
Defendants dispute whether the above table shows the portion
of the gross management fee was paid to the sub-advisers. To
the extent this is a distinction with a difference, the Court
agrees that the above table sets forth Defendants’ sub-advisory
expenses for the relevant funds in the associated time period,
not the portion of the gross management fee that was paid to the
sub-advisers. JX-703 § 7)a_ (“As compensation for the
performance of the services by the Sub-Adviser hereunder, the
Adviser shall pay to the Sub-Adviser, as promptly as possible
after the last day of each calendar year quarter, a fee accrued
daily and paid quarterly . . . .”); see also id. § 7(c) (“The
Sub-Adviser will not be entitled to receive any payment for the
performance of its services hereunder from the Portfolios.”).
The fees in this table were paid pursuant to the sub-advisory
agreements, not the IMAs. As such, the Court does not divide
the unitary fees pursuant to the IMAs into components earmarked
for Defendants or the sub-advisers.
13 It is generally undisputed that Wellington’s profit margin was
lower than Defendants’, PPFOF & DR ¶ 110; Trial Tr. 464:9-14, a
fact that is not that significant or surprising given the
businesses are different.
14 The Court, having viewed the testimony of Mr. Meyer, finds his
testimony credible and persuasive.
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managing the full line of mutual funds that are offered to the
As he testified, “we are responsible for product
management, product development, product integrity.
responsible for managing the portfolio managers, evaluating the
performance, reporting to the board . . . .”
Mr. Meyer testified that Defendants help in the
establishment of the fund strategy, and re-evaluate that
strategy as necessary.15
Specifically, Mr. Meyer was asked to
broadly describe “the portfolio [of] management services that
the investment manager provides to the at-issue funds[.]”
So, it would include things, some of which I referenced
earlier, the establishment of the fund strategy,
strategy, is it working, and whether or not changes need
to be made to a fund strategy. So, it’s a continuous
process evaluating that fund strategy.
Trial Tr. 725:11-19.
As Mr. Meyer explained, “that constant
evaluation entails things like should the fund strategy, if it’s
an equity fund and it’s a strategy that invests in large cap or
large U.S. companies, should the strategy also allow for
Plaintiffs argue that Defendants do not ever re-evaluate the
strategy, but other than pointing to the fact that in the 20102014 period the strategies generally were unchanged, Plaintiffs
do not provide any evidence that this was abnormal or that
Defendants were not undertaking their obligation to change fund
strategy as needed. PR ¶ 29.
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investment in smaller companies or mid cap companies.”
Defendants are also directly responsible for “selecting and
monitoring the sub-advis[e]rs or portfolio managers.”
This process included several components, generally
revolving around “making constant decisions around keeping them
or maintaining that portfolio manager, [or] changing the
Underneath the broad
umbrella of assessing and selecting a sub-adviser is the task of
“selecting and monitor[ing] the portfolio manager or portfolio
management team within a sub-advis[e]r[.]”
selection and monitoring of the portfolio manager or team is
“done at multiple levels.”
quantitatively measuring the performance of an individual
portfolio manager and qualitatively evaluating the portfolio
manager through conversations with him.
task also includes meeting with every portfolio manager at least
twice a year, and Mr. Meyer testified that “we also have the
ability to pick up the phone and talk to someone on the
portfolio management team or the portfolio manager if there’s a
particular question or issue as well.”
The Court does note that for four of the Funds, the subadviser did not change during the relevant time period. JSOF ¶
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The Defendants also serve in monitoring and reporting
functions, as Mr. Meyer explained.
This includes a “constant
evaluation of the performance of the portfolios or how the funds
are doing” and reporting that information to the Board on a
quarterly basis as well as in compliance “with the annual 15(c)
As Mr. Meyer testified:
So, as we perform this role and this assessment of
performance or how the portfolio manager is doing, we
have a series of reporting mechanisms that we look at[,]
as well as the board has asked us to produce reports on
a quarterly basis for the investment committee[,] and to
share with the full board about how the funds are
performing, what’s going into the funds, what’s our
It could be things like a general market review of what’s
worked in the marketplace this given quarter and how our
individual funds have performed, to the other extreme
where for each fund we produce what’s known as a fund
fact sheet or a fully comprehensive review of the fund,
its performance, its characteristics, what are the top
10 holdings, what has it done during different market
environments, again, things of that nature. And we share
that and report that to the mutual fund board.
Furthermore, as Mr. Meyer described, Defendants also
perform legal services for the Funds, including generating the
annual prospectus, the statement of additional information, the
preparation of and negotiation of contracts with service
providers, and the arrangement of any Board or shareholder
Mr. Meyer additionally testified about Wellington’s lack of a
chief investment officer, and how his team filled that role.
Trial Tr. 734:1-17.
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Additionally, the Defendants perform compliance
services, which include “assess[ing] the effectiveness of
compliance programs and [the] oversee[ing of] the compliance
programs, and the compliance programs of the sub-adviser as
Finally, Mr. Meyer also testified about administrative
services that were provided to the at issue funds, including the
provision of personnel and office space and assistance with
C. Risks Borne by the Defendants
In addition to performing the work described above, Mr.
Meyer testified about the risks Defendants face in their
provision of services under the IMAs.
testified concerning entrepreneurial risk, reputational risk,
and legal/regulatory risk.
Entrepreneurial risk, Mr. Meyer
explained, was viewed by Defendants as the risk that one of the
Funds might be offered but then the “market changes,” such that
a feature of the fund that was deemed beneficial in the market
no longer is considered to be a plus.
also discussed reputational risks that are borne by the
He testified that if the funds fail to deliver what
the shareholders are expecting, their name is at risk because it
is associated with the Funds.
regard to legal and regulatory risk, Mr. Meyer testified that as
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regulations change, or interpretations of regulations change,
there is a risk borne by Defendants that “what we have built or
the way we manage our fund is – in the future changes either
with new regulation or with a different interpretation of the
Plaintiffs’ expert witness, Dr. Kopcke, see infra, also
testified concerning risks.
He assessed the risks faced by
Defendants as “relatively low.”
He explained that
the liability-related clauses contained in the IMAs protect
against any outsized risk:
[B]ecause of the clauses we discussed earlier in the
management agreement, that basically says as long as
they behave themselves and don’t steal and act very
grossly negligent, they’re held harmless. And the way
a – financially firms usually work is that we have a
variety of laws and regulations that apply to them. And,
in general, if you behave yourself and follow the
compliance implied by the laws and regulations, nobody’s
going to hold you at fault if things go wrong. They’re
kind of a safe harbor that defines activities that spare
you this problem.
Certainly, the contractual provisions limiting
liability reduce risk, as Dr. Kopcke testified.
not appear to contest this fact.
The testimony from Dr. Kopcke,
however, did not address the types of risk, such as
entrepreneurial risk or reputational risk, which Defendants view
to be important.
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Several metrics for assessing the performance of the Funds
were presented by the parties throughout the trial.
parties had their preferred methodologies for assessing
Defendants argued that the Court should consider
two metrics: a Lipper peer group analysis and an analysis of
performance by their expert witness, Dr. Glenn Hubbard.18
Plaintiffs argued that neither of these performance analyses is
useful, and instead urged the Court to rely upon a comparison of
the Funds’ performance to the Funds’ own benchmarks.
i. Lipper Peer Group Analysis19
The Funds’ performance as shown in the Lipper Performance
Universe during the 2010-2014 time period is set forth below:
Dr. Hubbard is a professor of finance and economics and the
Dean of Columbia Business School. Id. 950:3-7, 1004:6-1005:2.
He has been a professor at Columbia since 1988. Id. 950:8-9.
He has been the Dean of the Business School since 2004. Id.
19 The Lipper peer group chart and Lipper analyses have been
challenged as hearsay in a motion in limine by Plaintiffs.
Pls.’ Br. in Supp. Mot. In Limine 19-22. The Court believes the
Lipper performance reports to be admissible under Federal Rule
of Evidence 803(17), which permits market reports and similar
commercial publications. See id. (permitting “market
quotations, lists, directories, or other compilations that are
generally relied on by the public or by persons in particular
occupations”). Moreover, there is sufficient evidence before
this Court to determine Lipper performance reports are relied
upon in the mutual fund industry and Plaintiffs’ attempts to
discredit Lipper performance data is unpersuasive to this Court.
As such, Plaintiffs’ motion in limine on this ground is denied.
Moreover, even if the Lipper performance reports were not
admissible, the result of this Court’s ultimate analysis in the
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The Court also received testimony and evidence from both
parties concerning the use of Lipper performance data.
Hubbard testified that Lipper has “got to be close to
universally used among advisors.”
Trial Tr. 968:19-20.
added “I can think of none who don’t use it . . . .”
Mr. Meyer likewise testified that his understanding
was that Lipper is used in the industry and is “highly regarded
case would not change, given that Dr. Hubbard’s analysis is
similar in outcome on the issue of performance. While his
analysis is based on Lipper data, it is based on basic raw data
from Lipper, which certainly falls under the purview of Federal
Rule of Evidence 803(17) and all selections and calculations
were made by Dr. Hubbard himself. Trial Tr. 964:2-5 (“I used
the underlying raw data. So, Lipper is doing no calculations
for me. I’m simply taking the data and imposing my own judgment
on how to construct a peer group.”); see also id. (“I did my own
analysis. So, Hartford didn’t talk to me, Lipper didn’t talk to
me. The only input to my analysis other than my own economics
is the raw data from Lipper, no calculations.”).
20 A fund that contains an entry of “n/a” indicates that the fund
did not have data applicable for the ten-year period due to the
fund’s inception date. Trial Tr. 748:17-22.
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for providing this type of competitive information.”
On the other hand, Plaintiffs offered evidence seeking to
undermine the viability of Lipper performance data.
note that Lipper boasts in the “Introduction” section of its
reports that its data has “been introduced by fund companies as
evidence in litigation and a consistent record of defendant
victories has been established.”
JX-542B at 12248; JX-549B at
20887; JX-557B at 30392; JX-563 at 116879; JX-571B at 2467824.
Additionally, Lipper reports contain a disclaimer that “there
are no guarantees as to the accuracy, completeness or
reliability of the information included in its reports.”
e.g., JX-557B at 30389.
Finally, and most germane to this case, Plaintiffs
presented evidence that suggested that Defendants interacted
with Lipper in the process of selecting peer groups prior to
that performance data being reported to the Board.
Specifically, Mr. Meyer testified that Defendants reviewed
drafts of the Lipper reports before they were provided to the
Periodically he “requested” changes to improve HFMC’s
peer group ranking, and Lipper would acquiesce.
920:15; PX-828 (email exchange indicating that Lipper revisions,
made at the request of Defendants, had yielded an improved peer
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Looking directly to his testimony, Mr. Meyer sufficiently
explained the neutral reasons for Defendants’ involvement in the
Lipper’s peer group ranking analysis.
That is, as Mr. Meyer
explained, the reason Defendants would interact with Lipper was
to understand the peer group selection and to make comments or
ask questions when they did not understand or agree with a peer
For instance, they might point out that “based on
[Lipper’s] methodology – our understanding of their methodology,
that other funds could have been chosen, why were they not?”
Mr. Meyer also testified that it is “common
practice for the management company and Lipper to engage in
providing the information, the drafts, reviewing the drafts and
He testified to at least one instance in
which Lipper has refused to change a peer grouping based on
commentary from his group.
Id. 927:4-8 (“We said to Lipper we
don’t agree with that assessment.
The manager hasn’t changed.
And they stood firm and said, you know, this is our methodology,
this is what we’re reporting to the board.
They reported [it]
to the board.”).
In its final analysis, the Court finds that the data from
Lipper is reliable.
The Court makes this factual finding for
First, the Court finds that Mr. Meyer’s
explanation of the reason behind Defendants’ interaction with
Lipper is credible.
Defendants seek to understand Lipper’s peer
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grouping and – to the extent they see it as problematic based on
their understanding of where they should be grouped – they may
voice that disagreement with Lipper.
If evidence had been
presented that Lipper universally accepted such requests without
question or hesitation, that might impugn the reliability of
The evidence, however, was exactly the opposite.
Second, the Court is simply not persuaded that a
generalized disclaimer that there may be inaccuracies in data
meaningfully undermines the validity of Lipper.
fact that Lipper in its reports’ introductions, which are
addressed to “boards of directors/trustees,” might boast that
its data has led to defense victories strikes this Court as
marketing puffery, certainly, but not a meaningful indication
that the data itself is wrong or unreliable.
introduction also contains a section discussing its experience
in the industry, a section discussing its objectivity, and a
remark that “The Wall Street Journal, Barron’s and the
Associated Press, among others, rely on Lipper for accurate, upto-date investment company data.”
JX-542B at 4.21
The Court is additionally unpersuaded by Dr. Kopcke’s
testimony that Lipper should not be used. Dr. Kopcke described
Lipper as “not very valuable information” because it is
backwards-looking and hard to reproduce. However, apart from
those general complaints, Dr. Kopcke was unsure how Lipper
actually arrives at its methodology. This does not sufficiently
explain why Lipper should not be used.
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As such, the Court does not discount Lipper’s data based on
Plaintiffs’ factual arguments, and it finds the data to be
That said, the Court certainly views Lipper as only
one of several metrics by which performance might be assessed.
Hubbard Performance Analysis
As mentioned, Defendants’ expert witness, Dr. Hubbard,23
also prepared his own peer group analysis of the Funds.
Funds’ performance under that analysis is set forth below:
Although not necessary to this Court’s determination of the
reliability of Lipper data, the Court does note that many courts
addressing claims such as this one have also looked to Lipper
data and determined it to be reliable. See, e.g., In re Am.
Mut. Funds Fee Litig., No. Civ. 04-5593 GAF (RBNx), 2009 WL
5215755, at *25 (C.D. Cal. Dec. 28, 2009) (“Lipper . . . is a
recognized industry-leading third-party source for mutual fund
industry data”); Sivolella, 2016 WL 4487857, at *64-65 (refusing
to accept the plaintiffs’ argument that Lipper data is
23 The Court had the opportunity to receive the testimony of Dr.
Hubbard. Because of the observed demeanor of Dr. Hubbard, as
well as the consistency of his testimony, the Court found the
entirety of his testimony to be credible. The Court is not
swayed by Plaintiffs’ argument that Dr. Hubbard’s work with the
ICI or prior work in 36(b) cases damages his credibility in this
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Dr. Hubbard testified concerning his methodology for
selecting these peer groups.25
Although Dr. Hubbard relied upon
underlying Lipper data, the “rules and the categorizations and
Funds with no data for a given year are the result of years in
which Dr. Hubbard could not identify five peers for the fund.
Trial Tr. 1006:19-22.
25 The creation of peer groups and Dr. Hubbard’s comparative fee
analysis are subject to a motion in limine by Plaintiffs. Pls.’
Br. in Supp. Mot. In Limine 17-19. As set forth infra, the
Court does not read Jones to require that Defendants demonstrate
comparative fees were negotiated at arm’s-length. Jones simply
cautions against overreliance on comparative fee analyses
because of the possibility that they will make use of corrupt
comparators. Jones, 559 U.S. at 349-50 (“[C]ourts may give such
comparisons the weight that they merit in light of the
similarities and differences between the services that the
clients in question require, but courts must be wary of inapt
comparisons.”). The Court has heeded this instruction in Jones.
With regard to Plaintiffs’ second ground for exclusion – that
Dr. Hubbard’s selected peers were not actually comparable – the
Court finds that Dr. Hubbard gave sufficient foundation to his
comparisons to render them admissible in the form of his
testimony that he selected similar funds. Trial Tr. 963:13967:16. Any other criticisms of them would go to the weight
assigned by the Court.
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the calculations were my own.”
selecting his own peer groups against which to compare the
Like Lipper, Dr. Hubbard
analyzed a ten-year time horizon in viewing performance in order
to smooth out the effects of business cycles.
he remarked, actively managed funds can make use of a mix of
style and industry bets, and “[s]ome of that can look very good
in business cycle peaks, or sometimes strategies can look better
in business cycle downturns.
So to smooth it out, you’d want a
period that goes longer than a business cycle.”
Dr. Hubbard testified that, analyzing performance from his
perspective, “for most funds and most, if not all, years, these
are well within the range of peers.”
focused his testimony on the worst performing Fund that he
analyzed, the Hartford Balanced Fund.
He explained that the
Hartford Balanced Fund “went through a number of management
He remarked favorably that the most recent period of
performance for that Fund, the ten-year period running from
2004-2014 showed above average performance for the Fund—46th
Plaintiffs presented their own analysis of the Funds’
performance by comparing the Funds’ benchmarks as defined in the
offering documents for the Fund.
For instance, with regard to
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would argue it’s less apt . . . It’s one data point.”
Additionally, Dr. Hubbard testified that “[t]he
benchmark, you’re assuming there is no cost of operating the
So you’re kind of putting yourself behind from the
As Dr. Hubbard testified, one cannot invest in a benchmark.
This notion is corroborated by each of the
prospectuses from which Plaintiffs pull their benchmark
comparisons, where each benchmark performance listing notes that
the performance of the benchmark “reflects no deduction for
fees, expenses or taxes.”
See, e.g. JX-50A at 6.
As Mr. Meyer
testified with regard to the Capital Appreciation fund as
compared to the benchmark, “[Y]ou’re not taking any fees out of
the Russell 3000 Index, so someone’s got to pay the financial
adviser, and in this example the SEC requires you to assume it’s
the maximum sales load, which has been taken out of the returns
of the Capital Appreciation fund.
And if I heard you correctly,
you’re comparing it to the 12.56 of the Russell 3000 Index,
which doesn’t equally take that cost out of the calculation.
it’s not apples to apples.”
Trial Tr. 905:5-13.27
while the Court does find comparison to benchmarks to be a valid
method by which to evaluate performance, the Court does agree
No witness for Plaintiffs testified concerning performance
issues. DPFOF & PR ¶ 49.
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with Defendants that there are certain problems associated with
consideration of solely benchmark performance.
E. Comparative Fee Structures
Defendants, but not Plaintiffs, presented evidence of fee
structures of other funds.
Defendants presented two
methodologies by which to analyze comparative fee structures:
consultation of the fee structures of peer groups as selected by
Lipper, and consultation of peer groups as selected by Dr.
Additionally, within those two methodologies,
Defendants presented evidence of the comparative fee structure
looking through two different lenses: (1) the total expense
ratio, and (2) simply the management fee.28
Because the Court
finds consideration of simply comparative fee structures on the
management fee sufficient to make its determination, it does not
consider the evidence related to “total expense ratio.”
The comparison of total expense ratio or the consideration of
other fees or agreements than the investment management fee has
been challenged by Plaintiffs on several grounds in one of their
motions in limine. Pls.’ Br. in Supp. Mot. In Limine 1-12.
They make this argument even against the backdrop of a
Gartenberg analysis, which considers “all relevant
circumstances.” While the Court is inclined to disagree with
Plaintiffs because a board negotiating a fee with an eye toward
arm’s-length bargaining might well consider the overall fee
backdrop against which they are negotiating, the Court
nevertheless declines to reach the issue of Plaintiffs’ first
motion in limine, as it is unnecessary to the ultimate
disposition of the case, which is based solely on the investment
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Defendants presented evidence of the management fee of the
Funds ranked against the management fees of its Lipper Expense
The results of that analysis are summarized in the
Defendants’ expert, Dr. Hubbard, also conducted an analysis
using his own peer groups to analyze the Funds’ management fees.
That chart is presented below:
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As noted above, no witnesses for Plaintiffs testified
regarding comparative fees of other mutual funds.
Defendants’ comparative fee analysis is the only one this Court
F. Plaintiffs’ “Retained Fee” Theory
The crux of Plaintiffs’ case largely turns upon the
argument that one should consider the services performed
specifically by Defendants as separate and apart from those
performed by the sub-adviser.
In support of this theory,
Plaintiffs presented the expert testimony of Mr. Kent Barrett.29
Mr. Barrett’s testimony that dealt with the salient issue of
the sub-adviser fee was mostly unpersuasive, as such testimony
illustrated several shortcomings. First, Mr. Barrett admitted
that he had testified previously numerous times, under oath,
that he had never served as a trustee or a director to a mutual
fund. Trial Tr. 296:16-25. This was not true, as Mr. Barret
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Mr. Barrett is a practicing accountant who has been
licensed since 1983.
He has practiced as an accountant for a
large accounting firm and has carried out consulting work.
Trial Tr. 78:17-18, 79:4-5.
In his current capacity, Mr.
Barrett leads major litigation engagements, typically in
situations involving allegations of auditor misconduct or
financial statement improprieties.
has also conducted a host of other engagements and has been
awarded other prestigious awards and designations that underlie
his status as an expert. Id. 81:4-92:11.
Barrett has serviced as an Executive Vice-President and Chief
Financial Officer for American General’s retirement services
division, which brought him into contact with the mutual fund
Mr. Barrett was qualified as an
expert in the areas of “accounting, financial reporting, and
had, in fact, served as a management representative on a board.
Second, on the same subject, the board upon which Mr. Barrett
served as a trustee involved a “retained fee” of 40 basis
points, id. 303:14-18, which is near identical to the retained
fee on the Capital Appreciation Fund that Mr. Barrett pointedly
criticizes. Id. 304:21-23; PX-593 at 3. Mr. Barrett testified
that he has no recollection of asking for numbers to be
presented to him at that time in any format that conveyed true
“economic reality,” which he faults the Defendants’
profitability numbers for concealing. Id. 306:18-25.
30 Mr. Barrett clarified that he was not involved in the actual
administration of mutual funds, but his responsibilities did
encompass financial reporting as to mutual funds. Id. 92:1293:3.
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financial analysis, with a specialization [in] insurance and
other financial services.”
Mr. Barrett testified concerning the distribution of labor
between the sub-adviser and the Defendants.
Mr. Barrett testified that it was his understanding that:
Wellington performs virtually all of the actual
investment management services and activities, the
actual investment of the assets, determining which
assets to purchase or sell, arranging for the purchase
and sale of those assets, ensuring that the investments
comply with both any and all regulatory requirements as
well as just the established investment policies for
each fund. Really, I mean, you said it, the day-to-day
operations, the actual investment activity I believe is
all done by Wellington.
With regard to the services performed directly by
Defendants, Mr. Barrett testified that his understanding was:
[T]hey are responsible for selecting the sub-advisors
with board approval. They are responsible for reviewing
everything that the sub-advisors do, supervising the
activity of the sub-advisors, and then in addition, as
we mentioned before under the IMA agreement, those
administrative functions of coordinating with other
parties that are providing services to the funds,
providing space for the funds, providing the officers
and directors of the funds.
Mr. Barrett also testified on the proper way to allocate
the costs of the Defendants to the specific funds using a costallocation methodology.
Using this methodology,
he was able to perform an analysis of the amount of full-time
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equivalent employees Defendants had working to provide services
to the Funds.
This calculation was done based on
instructions provided by defense counsel.
doing, Mr. Barrett calculated that Defendants had the equivalent
of between 20.6 and 21.5 full-time employees, on average,
performing services pursuant to the IMAs in 2010 through 2013
for all 50 plus retail funds in the group to which the Funds
As Plaintiffs are quick to point out, a simple
division of the full-time employees working on the group of
funds by the total number of funds indicates that less than one
full-time employee was devoted to working on each fund.
analysis, of course, does not include services performed by subadvisers, including how many employees they used to meet their
obligations under the sub-advisory agreements.
Consistent with his identification of the disparity between
costs incurred directly by Defendants and incurred through a
sub-adviser, Mr. Barrett also testified concerning Defendants’
“retained fee” in this case.
This is Mr. Barrett’s methodology
for conveying the disparity between Defendants’ profit and
comparatively small in-house expenses.
As Mr. Barrett
testified, a “retained fee is, in this case, where we understand
that HFMC charges a gross fee to the fund, and then it passes
along a portion of that fee to Wellington as the sub-advisor,
the retained fee is simply the portion that HFMC retains.
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would be the total gross fees collected from the funds minus the
amount passed along to Wellington, giving the amount that HFMC
retains or keeps.”
To reach the retained
advisory fee for Defendants, Mr. Barrett testified that one
should take the Gross Advisory Fee, subtract the advisory fee
waiver, sub-advisory fees, and the reimbursement of the advisory
Id. 181:13-182:21; PX-767.
He provided this overlay to
clarify the calculation:
Calculating the “retained fee” using this methodology, the
following values were obtained by Mr. Barrett for each Fund
during the years 2010 to 2013:
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Mr. Barrett defends his methodology for adopting the
“retained fee” theory on the “economic reality” of the
Specifically, Mr. Barrett testified that the proper
way to view the costs of a sub-adviser is through the lens that
Defendants’ payment to the sub-adviser passes right through the
Trial Tr. 199:15-24.
For instance, with regard to
the Capital Appreciation Fund in 2011,
[Defendants] spent $900,000 and they get $70 million in
exchange. That’s where they end up. Now, they get[$]113
million and they pass [$]43 million along, so there’s
some different steps in the process, but at the end of
the day, they end up with $70 million more than they had
when they started.
In effect, Mr. Barrett’s methodology compares
the work that Defendants did in-house with the profit that they
ultimately kept themselves.
See id. 200:6-8.
highlighted the fact that for running the day-to-day operations
of the Funds, Wellington received far less in fees than did
Defendants, and the Wellington contract was indisputably
negotiated at arm’s-length.
On cross-examination, Defendants established several facts
which are important to this Court’s holdings.
Barrett’s testimony that the payments to sub-advisers shouldn’t
be considered as expenses of Defendants was undermined by his
own concession that he had no supporting accounting authority
for his novel position.
In fact, Mr. Barrett
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readily conceded that under the Generally Accepted Accounting
Principles (“GAAP”), sub-advisory fees are treated as an expense
of the adviser, just as Defendants have asked the Court to treat
Likewise, Mr. Barrett testified that he
would not be surprised to learn that the international financial
reporting standards also indicate that sub-advisory fees should
be treated as an expense of the adviser.
The fact that GAAP and other accounting authorities treat
sub-adviser fees as an expense of the adviser was further
corroborated by Mr. Barrett’s own experience on a mutual fund
Mr. Barrett testified that he would not be surprised to
learn sub-adviser expenses were treated by his board as an
expense of the adviser, contrary to how his “economic reality”
model of the “retained fee” would treat them.
Indeed, he testified that he has been involved in a number of
similar cases, and “in all of these cases that I’ve seen, that’s
the way they’re presented to the board.”
his experience on a board and his opinion regarding the economic
reality of these transactions, Mr. Barrett had no recollection
of ever suggesting that the board he served on be shown
profitability calculations that treated sub-advisory fees as
contra-revenue rather than expenses of the adviser.
Further, the board upon which Mr. Barrett served as a
management representative involved a “retained fee” of 40 basis
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points with regard to the sub-adviser’s, which is nearly
identical to the retained fee on the Capital Appreciation Fund
in certain years.
Finally, Mr. Barrett conceded
on cross-examination that his opinion concerning the treatment
of sub-advisory expenses came about during the recent Sivolella
Before that case, he testified, he hadn’t “ever thought
about [these] issues.”
Additionally, Defendants’ accounting expert, Dr. Robin
Cooper,32 gave credible testimony in the area he was qualified
Dr. Cooper testified about the
The Court also notes that on re-direct it was established that
in at least some documents prepared by Defendants, sub-advisory
costs were treated as contra-revenue. Trial Tr. 323:1-8. This
was not particularly persuasive as evidence that the Court
should view them that way too, as Defendants’ expert, Dr.
Cooper, persuasively testified that “what I observed about the
two examples that Mr. Barrett used is one he acknowledged for
the sale of the business and the other is one for the creation
or potential creation of a joint venture between the Hartford
Manager and Wellington, and both of those reports are prepared
for outside the normal course of managing the business.” Id.
32 Dr. Cooper is a 1975 Harvard Business School graduate, with
experience in accounting for a large accounting firm. Trial Tr.
607:14-25. He additionally taught at Harvard Business School as
an assistant and associate professor for ten years. Id. 608:1821, 25. He was also on the faculty at Emory University for
fourteen years. Id. 609:7-11. At these institutions he has
taught a variety of accounting courses. Id. 609:16-610:2.
33 Plaintiffs have brought a motion in limine to exclude portions
of Dr. Cooper’s testimony. First, Plaintiffs argue that Dr.
Cooper’s statement that he reached his opinion by letting his
brain “munge” all of his research into the treatment of subadvisory fees impugns his ability to testify as an expert.
Trial Tr. 626:7-11. Plaintiffs argue that munging is not a
reliable process for purpose of Federal Rule of Evidence 702.
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difference between management accounting, which is not based on
an overall set of rules and is designed to represent financial
information in any way that is “useful for the decision-maker,”
id. 625:1, and financial accounting, which is “the accounting
where the recipient of the accounting information is an external
stakeholder” and is a more rules based approach that “hands over
a standard pack [of information on economic substance] to the
Dr. Cooper then testified about how Defendants accounted
for sub-advisory expenses in this case.
He testified that in
this case, sub-advisory fees were classified as an expense by
Defendants, Id. 625:16-17, contrary to the methodology
Plaintiffs urge should be used to assess the fees, contrarevenue, which would treat sub-advisory fees as neither revenue
nor an expenses of Defendants.
PPFOF ¶ 98 (“[T]he sub-advisory
The Court disagrees and notes that Dr. Cooper appears to have
used the phrase as a synonym for “reasoning through data.” The
Court disagrees with Plaintiffs’ assessment of his methodology
and does not exclude testimony on that ground. Second, the
Court finds that Plaintiffs’ criticism of Dr. Cooper’s
methodology for arriving at a determination of principal/agency
relationship goes more to weight. Whether his assessment of
control was fulsome enough is a subject ripe for crossexamination, not one of admissibility. Third, with regard to
Plaintiffs’ argument that Dr. Cooper’s testimony is inadmissible
because it was received from others, the Court disagrees and
believes the record supports a finding that Dr. Cooper’s
testimony was arrived at independently without undue assistance
of counsel. The Court, likewise, does not find the assistance
of Analysis Group to be improper, either.
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fees should be treated by the Court as contra-revenue.
Treatment of the sub-advisory fees as contra-revenue means that
they would not be treated as revenue to HFMC or an expense.”);
see also Trial Tr. 222:24-223:3 (“Q: So I think you testified to
this, Mr. Barret, but the only difference between how you would
calculate the profit margin and how Hartford calculated it is
how we treat sub-advisory expenses.
A: Yes, that’s
Dr. Cooper then testified that the accounting
treatment by Defendants was “not only correct; it’s the only way
that they can treat it.”
Trial Tr. 626:12-16; see also id.
633:16-21 (“[Mr. Barrett’s] approach would delete the subadvisory fees completely from the books of account of the
G. Plaintiffs’ “Rent-Seeking” Theory
Plaintiffs additionally called Dr. Richard Kopcke to
provide expert testimony in this case.
Dr. Kopcke is an
Dr. Cooper also persuasively testified about the perils of
viewing profit margin similar to Mr. Barrett’s approach. By
permitting a party to exclude sub-advisory expenses from its
balance sheet, it would permit an investment manager to
selectively move costs in-house to minimize profit margin.
Trial Tr. 655:4-15.
35 On cross-examination, Plaintiffs sought to demonstrate that
Dr. Cooper’s use of Analysis Group undermined his testimony,
which this Court did not find persuasive. The Court
additionally did not find persuasive the fact that Dr. Cooper
had minimal experience working for a mutual fund because of his
broad-based experience teaching accounting and his general
qualification as an accounting expert.
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economist and a financial analyst currently employed by the U.S.
Treasury as an adviser to foreign governments.
Dr. Kopcke was qualified to testify as an expert witness in the
areas of economics, econometrics, financial markets and
financial institutions, including investment management and
financial analysis and services.
Dr. Kopcke first testified on issues related to competitive
markets and specifically, flawed markets that do not show
competitive market traits.36
He also testified
more generally on the benefits of competitive markets, such as
the ability of parties to seek alternatives and the price
benefits that come from self-interested parties.
This background testimony on economic and market theory
served as a prelude to one particular issue that arises in the
context of competitive (or non-competitive markets): rentseeking behavior.
As Dr. Kopcke described it,
rent-seeking is the behavior of pursuing more compensation for
one’s effort than a competitive market would allow.
24. Rent-seeking behavior ultimately results in a degradation of
the foundations of a competitive market.
Dr. Hubbard also testified briefly concerning investment
management fees and competition. See, e.g., Trial Tr. 953:7954:20. This testimony is subject to a motion in limine to be
excluded by Plaintiffs. The Court determines the motion is moot,
as it does not consider this testimony in reaching its decision.
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On the other end of the spectrum, Dr. Kopcke testified as
to what an arm’s-length deal truly signifies.
He testified, “it
means to me that each party must see a reasonable amount of
value in the deal, and if it’s reached at arm’s-length, when
both knew that they could seek other – other ways of doing their
business, I would say it comes close to approximating what we
would call a competitive market price.”
requirement of an arm’s-length bargain is that the parties
cannot be related to each other, even indirectly.
Against this background, Dr. Kopcke testified about
competitive issues that can arise in the context of mutual
Id. 396:20-1 (“[T]he main problem is it’s not the
practice in the mutual fund industry for the board to put the
advisory function, the manager’s function, out to bid every
year. They will continually return to the advis[e]r established
by the sponsor of the fund and rely on that advisor’s financial
statements and assertions about how the fund is performing in
making its decisions.”).
This raises several issues:
Well, we have conflict of interest problems at every
level in the negotiations, but, in particular, the
advis[e]r or administrator’s negotiations with the
board. We also have a principal agent problem there as
well. And so, therefore, the information and the access
of all parties and the bargaining power of all parties
are not equal. It would be more equal, for example, if
there were competitive bidding, but that’s just not the
way it’s done, so that check on ensuring the conditions
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for competitive arm’s length bargaining or competitive
markets is missing.
Dr. Kopcke then engaged in a lengthy analysis and
description of the IMAs and the sub-adviser agreements.
ultimately determined that the configuration of the IMAs and
sub-advisory agreements made sense:
This is a pretty standard and reasonable setup. It makes
a lot of sense that the advis[e]r would engage a
specialized expert such as Wellington to conduct many of
the day-to-day operations of the funds, while the
advis[e]r retains the responsibility of communicating to
the board, the responsibility of overseeing the subadvis[e]r and directing the sub-advisor, as necessary.
So it’s supervisor, administrative, and takes the
responsibility of reviewing the daily pricing and
compliance from the data supplied by the – in part, the
Dr. Kopcke also testified that the sub-advisory agreements
represented arm’s-length bargains.
On the other
hand, Dr. Kopcke’s analysis of the profitability of Defendants
led him to believe that the IMAs did not represent an arm’slength bargain.
Dr. Kopcke used the same process as Mr. Barrett
to arrive at a retained fee.
He then compared
the profit that Defendants earned based on that retained fee and
the expenses Defendants directly incurred.
testified that, in the context of an arm’s length fee, he would
expect to see “some reasonable correspondence between the two
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Instead, he determined that
Defendants’ profit is “extraordinarily disproportionate.”
He testified, “we just don’t see profit margins of
98 percent in competitive market transactions, because nobody
expects to pay a profit 70 times the provider’s cost.”
Ultimately, he testified that the profit margin of
all of the funds indicated that the agreements could not have
been negotiated at arm’s-length.
Dr. Kopcke’s rationale for considering profit independent
of sub-advisory fees was that one should generate a profit on
the resources he personally commits and the work he does for a
service or for a product.
on work others do.
“You’re not entitled to earn a profit
That’s just basic economic principles.
other words, we call it in economics value added.
value, you get paid for it.”
testified, the behavior of Defendants in this case amounts to
the capture of economic rent.
Dr. Kopcke then engaged in an analysis of the proper means
and amount of profit for Defendants to earn in this case.
a question from the Court, he testified that the proper profit
margin he would expect to see would usually top out around 60
He testified that breakpoints as
included in the fee schedules did not change his analysis.
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He also testified that a profit margin around 30
percent was usual in the industry.
Problematically, on direct, the witness was asked to look
at the gross management fee paid on the Capital Appreciation
Fund in 2011 ($113,528,000).
period was $43,470,000.
The sub-advisory expense for that
The direct operating expenses
for Defendants during that period were $918,000.
Now, concerning the total [investment
management] fee paid, do you have an opinion as to
whether or not that is excessive as [it] relates to the
expenses, including both HFMC and the sub-advisory fee?
. . .
A: It’s a little high, but it could have resulted from
an arm’s length bargain.
Additionally, on cross-examination, Dr. Kopcke admitted
that his method of reaching a proper profit for Defendants
involved using an “expense-plus approach.”
Q: Okay. And then – so here, you’re taking an expenseplus approach, right?
Q: Okay. And the concept, if I understand correctly,
is that the total fee charged to the funds would be the
sum of, 1 HFMC’s operating expense; plus, 2, 43 percent
of HFMC’s operating expense; plus, 3, the fee paid to
the sub-advisory. Is that right?
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Further, it was shown on cross-examination that Dr.
Kopcke’s proffered reasonable fee for the Floating Rate Fund in
2013 (15.19 basis points, of which 14 basis points would
compensate Wellington and 1.19 would compensate Defendants)
yielded an ultimate management fee of one-one-hundredth of one
percent of AUM.
By way of comparison, the
actual management fee charged by the Floating Rate Fund during
2013 was rated near 60 basis points, which placed it at 15th out
of 29 in its Lipper peer group for management fees.
Dr. Kopcke’s suggested fee of 15.19 basis points would have been
11.11 basis points lower than the lowest fund in the Lipper peer
Dr. Kopcke’s response to this fact was that the
comparison funds seemed to be “quite expensive.”
Having framed the factual evidence as it was presented, the
Court now sets forth its analysis of the Gartenberg factors,
including all relevant surrounding information. As set forth
above, those non-exhaustive factors are: “(1) the nature and
quality of the services provided by the adviser to the
shareholders; (2) the profitability of the mutual fund to the
advisers; (3) “fall-out” benefits; (4) the economies of scale
realized by the adviser; (5) comparative fee structures with
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similar funds; and (6) the independence and conscientiousness of
the independent trustees.”
Gallus, 497 F. Supp. 2d at 979.
This Court has already determined that the final listed factor,
the independence and conscientiousness of the independent
trustees, cuts in favor of Defendants’ position.
Nature and Quality of Services Provided
1. Nature of the Services
A crucial metric in this case is a determination of the
nature of the services provided by the Defendants.
Plaintiffs’ principal theory of the case, the services provided
by Defendants are woefully minimal compared to the excessive
profit they reaped, amounting to less than one full-time
employee per fund.
This is a tangential result of Plaintiffs’
“retained fee” theory of the case, as primarily outlined by
Plaintiffs’ expert Mr. Barrett, whereby the services of subadvisers are not considered as an expense of the Defendants.
At summary judgment, the Court expressed its preliminary
thoughts on the issue of Plaintiffs’ theory of excluding the
services of sub-advisers from consideration under Section 36(b):
It would be a strange holding to rule that the nature or
quality of the services provided by the  Defendants
were inferior solely because they were contracted out to
Wellington, when the parties acknowledged this as a
possibility in their initial contract. Put differently,
what’s the difference to the Funds if the  Defendants
perform the services directly or by way of a sub-adviser?
The sub-adviser clause in the contract seems to indicate
that (barring rejection of the sub-adviser by the Board)
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there is no difference. The plain fact is, as part of
the Board’s bargain with the  Defendants, the
performance of the duties ultimately tasked to
Wellington was secured.
Disregarding those services
solely because the  Defendants made the permissible
business decision that they were better or more
efficiently (or even more inexpensively) performed by
Wellington is non-sensical.
Despite this Court’s earlier reservation, Plaintiffs
labored during trial to present much evidence explaining why
this Court should not consider the services of Wellington.
Nevertheless, the Court finds that consideration of services
performed by Wellington is proper.
As an initial matter, the
Court is reminded of a central tenet of Section 36(b), that
courts must consider “all services rendered to the fund or its
shareholders and all compensation and payments received, in
order to reach a decision as to whether the adviser has properly
acted as a fiduciary in relation to such compensation.”
No. 91-184, at 13 (1969), reprinted in 1970 U.S.C.C.A.N. 4897,
4910 (1970); see also Gartenberg v. Merrill Lynch Asset Mgmt.,
Inc., 528 F. Supp. 1038, 1052 (S.D.N.Y. 1981) (it is “entirely
proper for the fiduciary to consider the totality of the values
placed at the disposal of the shareholders in appraising the
fairness of the compensation, or else form would be substituted
for substance”); Benak v. Alliance Cap. Mgmt. L.P., No. 01-5734,
2004 WL 1459249, at *8 (D.N.J. Feb. 9, 2004) (“[U]nder § 36(B)
it is the overall nature and quality of the services provided by
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the investment adviser that is at issue – not merely some small
percentage of those services”.).
This is a challenge of the
investment management fee that Defendants collected; that fee
was paid pursuant to the IMAs.
As such, the Court will consider
all services provided under the IMAs for that fee, whether
Defendants performed them or hired others to fulfill their
As to the SEC consent judgments cited by Plaintiffs, which
are held out to stand for the notion that a sub-advisory type
relationship is suspect when the adviser makes a significant
profit, the Court is unpersuaded that these consent judgments
carry the weight Plaintiffs urge.
To the extent stipulated
consent judgments before the SEC are persuasive authority, the
Court is nevertheless convinced that each case cited by
Plaintiffs involved facts far different from those at play here.
In SEC v. Am. Birthright Tr. Mgmt. Co. Litig., 1980 WL 1479
(D.D.C. Dec. 30, 1980), the complaint alleged that the offering
documents associated with the mutual funds “failed to disclose
or misrepresented material facts and circumstances relating to,
among other matters, . . . the advisory services performed by
the ‘sub-adviser’ to the funds and the compensation paid to it .
. . .”
In this case, any allegations
that information was misrepresented by Defendants did not
proceed to trial.
Indeed, there has never been any allegation
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that Defendants failed to disclose or misrepresent that
Wellington was performing sub-advisory services and what the
compensation for those services was.
As such, the Court finds
American Birthright to be distinguishable.
Likewise, In re Smith Barney Fund Mgmt. is also
That case, and ultimately the consent
judgment, involved allegations of misleading the Board as to the
economic substance of a relationship with a transfer agent:
[T]he Adviser, which serves as an investment adviser to
the Smith Barney Family of Funds . . . , recommended the
Funds contract with an affiliate of the Adviser, which
would perform limited transfer agent services and subcontract with the Funds’ existing transfer agent. The
existing transfer agent would perform almost all of the
same services it had performed previously, but at deeply
discounted rates, permitting the affiliate of the
Adviser to keep most of the discount for itself and make
a high profit for performing limited work. In making
this recommendation, the Adviser misled the board by
omitting material facts, which led the boards to believe
that the Adviser’s recommendation was made in the Funds’
best interests, which was not true.
Id. at ¶ 1 (emphasis added).
At trial, there was no allegation
that the Board was materially misled by information provided by
Next, the Court is unpersuaded that R.W. Grand Lodge of F &
A.M. of Pa. v. Salomon Bros. All Cap Value Fund, 425 F. App’x
25, 30-31 (2d Cir. 2011) or Operating Local 469 Annuity Trust
Fund v. Smith Barney Fund Mgmt., LLC, 595 F.3d 86, 93 (2d Cir.
2010) counsel in favor of excluding sub-advisory services from
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That case involved allegations at the motion to
dismiss stage of a defendant entering into a phony relationship
for the purpose of fleecing the shareholders:
Defendants caused the [funds] to negotiate a contract
with an SSB affiliate to replace the Funds’ existing
transfer agent. Once it replaced the existing agent,
the SSB affiliate then sub-contracted with that agent to
continue to perform virtually the same services that it
had previously performed, but at a steep discount.
Rather than pass the resulting savings on to investors
in the form of lower fees, SSB’s affiliate kept the
windfall, permitting Defendants to profit at the expense
of the SSB Funds and their investors.
Id. at *30; see also Operating Local 469, 595 F.3d at 93
(“Deloitte expressed doubts to CAM as to the legality of the
arrangement, questioning, among other things, whether the
anticipated savings [on the new arrangement] belonged to the
Funds as opposed to the investment adviser and whether the Fund
Boards would ever approve such an arrangement.
At that point,
CAM changed course and created a transfer agent subsidiary[.]”).
This case contains no allegations that Defendants negotiated a
sham contract to provide the same services they had previously
contracted to provide under a different contract solely for the
purpose of an ill-gotten windfall.
There was simply no evidence
put forward by Plaintiffs that the Board was not aware of the
services and method by which Wellington would be compensated.37
The Court is additionally unpersuaded that the Pfeiffer case
is persuasive. In that case, “serving as a pass-through entity
for . . . payments [did] not constitute ‘receipt’ under the
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The Court is also unconvinced by Plaintiffs’ resort to
common law fiduciary principles to show that the “economic
reality” requires the Court consider only Defendants’ retained
fee (and associated services).
The Supreme Court has declined
to articulate the exact overlap of common law fiduciary duties
and those under Section 36(b), and has noted at least one
difference between the standards that raises the bar for
Jones, 559 U.S. at 347 (“The [ICA} modifies this
duty in a significant way: it shifts the burden of proof from
the fiduciary to the party claiming breach . . . .”);see also
Sivolella, 2016 WL 4487857, at *3 (“However, the fiduciary duty
imposed by § 36(b) is significantly more circumscribed than
common law fiduciary duty doctrines.” (citation omitted)).
Moreover, the Restatement (Third) of Trusts, which suggests that
a rule of “reasonable compensation” should apply when a portion
of the investment function is delegated directly contradicts
Congress’s intent in enacting Section 36(b).
Jones, 559 U.S. at
352 (“Congress rejected a ‘reasonableness’ requirement that was
ICA.” Pfeiffer v. Bjurman, Barry & Assocs., No. 03 Civ. 9741,
2006 WL 497776, at *5 (S.D.N.Y. Mar. 2, 2006), aff’d, 215 F.
Appx. 30, 31-32 (2d Cir. 2007). In this case, the evidence does
not establish that Defendants served as a pass through entity
for Wellington’s service, particularly in light of Mr. Meyer’s
testimony concerning oversight obligations and Defendants’
retention of risk and liability.
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criticized as charging the courts with rate-setting
Although the costs that were directly incurred by
Defendants were low in relation to the gross management fee that
was paid, the Court finds that a consideration of all of the
services performed, including those performed by sub-advisers,
Plaintiffs have not carried the burden of showing that the
nature of the services indicates the fees were so
disproportionate that they could not have been negotiated at
This is particularly so in light of the risks
that were also borne by Defendants, which Plaintiffs only
tacitly disagreed with in the examination of Dr. Kopcke.
Sivolella, 2016 WL 4487857, at *42-44 (considering risks faced
by the adviser).
Most problematically, however, Plaintiffs presented little
or no evidence in their case on the nature of the services
provided by Wellington,39 which the parties do not dispute
The Court is similarly unpersuaded by reliance on the Uniform
Trust Act, § 708 (2010 rev.), which notes that “a downward
adjustment of fees may be appropriate if a trustee has delegated
significant duties to agents, such as delegation of investment
authority to outside managers.” Id. Defendants retain ultimate
responsibility for ensuring all of the Funds’ investment
management services are performed.
39 The Court is also unpersuaded that the Board could have
contracted directly with Wellington and thereby secured a
separate analysis of Wellington’s and the Defendants’ contracts,
consistent with what they argue is the “economic reality” of the
case. Those are not the facts of the case, and the Court is
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accounted for millions of dollars and the vast majority of
services (at least monetarily) performed under the IMAs.
evidence showing the nature of these services was somehow
suspect or inadequate, Plaintiffs have not carried their burden.
2. Quality of the Services
The Court also heard evidence concerning the quality of the
services performed by Defendants.
Plaintiffs and Defendants
presented three metrics by which one might assess the
performance of the Funds.
Each of these presents a different
look at the overall picture, and the Court does not find that
one method over another is better or worse.
Defendants’ two performance analyses, Lipper’s and Dr.
Hubbard’s, both support a finding that the Funds performed
roughly in a middle-of-the-road fashion or better for most of
For instance, looking to the Fund that Plaintiffs
used as an exemplar throughout most of the trial, the Capital
Appreciation Fund, the Lipper performance numbers show the fund
performed in the 34th, 9th, 7th, 23rd and 32nd percentiles between
2010 and 2014.
The Court finds this performance is
unconvinced on the evidence before it that such a hypothetical
separate agreement, if it had been reached, would have been in
all other ways identical to the relationships, risks and
liabilities borne by the respective parties. Likewise, the
Court is unconvinced that Wellington’s fiduciary duty to the
Funds necessarily implies that the fees can be bifurcated as
Plaintiffs treat them.
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unquestionably strong based on an analysis of Lipper data. The
Court likewise finds that the performance of all remaining
funds, except the Balanced Fund was average or strong based on
this particular metric.
On the other hand, the Fund that appears to have performed
the worst, the Hartford Balanced Fund, does not have similarly
Based on the Lipper peer group, the performance
ranged between the 77th and 71st percentile.
The Court finds that
this performance is well-labeled as below-average, although the
Court does note that in the final 10-year reporting period
(2014), the Balanced Fund outperformed 29% of its competitors.
Dr. Hubbard’s unrebutted testimony that the fund was undergoing
management changes, and the fact that the Fund performed
strongest during the final ten-year period presented to the
Court softens the determination that the Fund overall performed
Dr. Hubbard’s analysis using his own independently selected
peer groups is similar in outcome to Lipper’s.
DX-509, demonstrates that all of the funds except the Hartford
Balanced Fund outperformed the majority of their peers in the
vast majority of 10-year reporting periods.
the Balanced Fund was somewhat of a straggler, although it
performed better under Dr. Hubbard’s analysis, ultimately
outperforming more than half of its competitors in the final 1061
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year reporting period.
Again, the Balanced Fund’s poor
performance is softened by the credible and unrebutted
explanation that the managerial shakeup with the Fund and an
associated increase in performance in the final interval.
Plaintiffs additionally have argued that the performance of
the Funds was poor based on their near-universal failure to
exceed the performance of their selected benchmarks.
Certainly benchmarks are a way to assess the performance of a
But, Plaintiffs presented little evidence that the
failure to hit a benchmark is a strong indication of poor
The Court has little trouble believing that mutual
funds in general strive to do as well as possible, including
frequently attempting to beat any and all benchmarks.
the opposite notion, that failure to hit a benchmark is the sine
qua non of poor performance is not well-established on the
evidence before the Court.
On the other hand, the Court did receive persuasive and
competent testimony from Dr. Hubbard concerning the value of
benchmarks in assessing performance.
As he set forth in his
testimony, they are one metric for evaluating performance, but
they are a metric that analyzes performance in a vacuum, because
fees are not involved.
For instance, although the Hartford
Capital Appreciation Fund failed to outperform the Russell 3000
Index over any of the 1, 5 or 10 year spans pointed to by
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Plaintiffs, based on the testimony of Dr. Hubbard, this is not
surprising, as the Russell 3000 is not a mutual fund, but an
index which does not incorporate fees.
As such, in going
against a benchmark, a mutual fund begins in the hole.
Although the performance evidence the Court received seems
to indicate one of the Funds, the Hartford Balanced Fund,
performed below average during the relevant time periods, the
remaining Funds appear to have performed – at worst – middle of
For those Funds, the quality factor of the Gartenberg
analysis does not point in favor of finding the fees paid
Defendants could not have been part of an arm’s-length
With regard to the Hartford Balanced Fund, this
generally weak performance tips very mildly in Plaintiffs’
With regard to the issue of profitability, the Court is
guided by the notion that it is not a permissible approach under
Section 36(b) to argue that the adviser “just plain made too
Kalish v. Franklin Advs., Inc., 742 F. Supp. 1222,
1237 (S.D.N.Y. July 24, 1990).
Section 36(b) has never required
a “cost-plus” method of setting profits. Consistent with the
Court’s consideration of the services provided by Wellington in
considering the “nature of services” provided, the Court
considers profitability inclusive of Wellington’s fees.
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such, the Court does not give weight to Mr. Barrett’s “retained
fee” methodology for calculating profitability, which yielded
extremely high profit margins.
Instead, the Court looks to the
profitability as reported based on Lipper’s and Dr. Hubbard’s
Excluding consideration of distribution fees, the profit
margins for the Defendants were as follows:
JX-3E; JX-5E; JX-7E; JX-9E; JX-11D; see also PX-593 (“Reported
Profitability Ratio (Gross)”).
The Court has little evidence before it with which to
determine whether these profit margins are so great that they
could not have been achieved at arm’s-length.40
See generally In
re Am. Mut. Funds Fee Litig., 2009 WL 5215755, at *50 (“Section
The Court is unpersuaded that the proper course is to compare
the profit margins of Defendants to Wellington, as Plaintiffs
urge. PPFOF ¶¶ 110. Although Wellington’s profit margin is
lower than Defendants’, PPFOF & DR ¶ 110, as Defendants point
out, the Court is in receipt of little evidence that the
profitability of a sub-adviser with a different role and
different risks, among other differences, can be compared.
Trial Tr. 468:6-14.
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36(b) does not prohibit an investment adviser from making a
profit, nor does it regulate the level of profit.”).
the case law, pre-tax margins (like these) as high as 77.3% have
Schuyt v. Rowe Price Prime Reserve Fund, Inc.,
663 F. Supp. 962, 972 (S.D.N.Y. 1987), aff’d, 835 F.2d 45 (2d
Moreover, the Court is also not persuaded by Dr. Kopcke’s
opinion on profitability because his model essentially seeks to
adopt a cost-plus approach.
Trial Tr. 436:7-9, 508:25-509:11
(“Q. . . . [S]o here, you’re taking an expense[-]plus approach,
right? A. Correct.”).
It is well-established that Section 36(b)
does not require cost-plus profit for advisers.
Schuyt, 663 F.
Supp. at 972 (Senate Report “indicates that the investment
adviser is entitled to make a profit and that the bill neither
requires a ‘cost-plus’ advisory agreement nor general concepts
of rate regulations, such as those applicable to public
utilities”) (citing S. Rep. No. 91-184).
In this light, Plaintiffs have failed to meet their burden
of establishing that the Funds were so profitable that their fee
could not have been negotiated at arm’s-length.
perhaps best demonstrated by Dr. Kopcke’s own direct examination
where, when presented with the exact figures of a particular
year for a particular fund, he testified that the profits were
“a little high, but could have resulted from an arm’s length
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Simply put, if a fee could have resulted from an
arm’s-length bargain, then Plaintiffs have failed to meet their
iii. Fall-Out Benefits
Plaintiffs, despite the Court’s holding that the issue of
fall-out benefits was a disputed one at summary judgment, do not
make any argument with regard to fall-out benefits after trial.
Pls.’ Br. 25 (“Plaintiffs did not address economies of scale or
fall out benefits”).
Fall-out benefits are those which accrue
to the mutual funds adviser as a result of its work on behalf of
the mutual fund.
Hoffman v. UBS-AG, 591 F. Supp. 2d 522, 539
Accordingly, for purposes of meeting their
burden of proof, the Court finds that the absence of evidence
with regard to fall out benefits that were realized by
Defendants in its relationship with the Funds militates against
a finding that the fee was so disproportionate that it could not
have been negotiated at arm’s-length.
Plaintiffs have not
carried their burden with regard to this factor, either.
Economies of Scale
Likewise, Plaintiffs also concede that they did not address
economies of scale at trial.
Pls.’ Br. 25.
The reason behind
the omission of this evidence is that “Defendants’ costs are so
low that even were they to have experienced economies of scale,
those economies would have no meaningful impact on their costs.”
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For purposes of meeting their burden of proof, the Court
finds that the absence of evidence with regard to economies of
scale that were realized by Defendants in their relationship
with the Funds against a finding that the fee was so
disproportionate that it could not have been negotiated at
Comparative Fee Structures
Plaintiffs additionally made no effort to present evidence
of comparative fee structures at trial.
Indeed, their post-
trial brief emphasizes the unimportance of comparative fee
Pls.’ Rep. Br. 9 (“[C]omparative fees are
Plaintiffs are certainly correct
that courts should be wary of giving undue weight to fees
charged by other mutual funds.
As the Supreme Court in Jones
noted, “[t]hese comparisons are problematic because these fees,
like those challenged, may not be the product of negotiations
conducted at arm’s length.”
559 U.S. at 350-51.
Plaintiffs’ position, however, “not relying too heavily” on
comparisons does not mean “not relying at all.”
fulsome reading of the section of the Jones opinion explicitly
reveals that comparative fee structures, when the circumstances
are appropriate, should be considered: “courts may give such
comparisons the weight that they merit in light of the
similarities and differences between the services that the
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clients in question require, but courts must be wary of inapt
Id. at 350-51.
Wariness of inapt comparisons and
an instruction not to rely too heavily upon fee comparisons does
not equal an outright bar to the consideration of comparative
fee analyses under Jones.
See DPFOF & PR ¶ 55 (“Defendants
proffered no evidence that the fees in their suggested fee
comparisons were negotiated at arm’s length.
comparative fee “evidence” is tainted and irrelevant under
Considering the evidence before the Court on the issue of
comparative fees, the Court finds that this factor weighs
against a determination that the fees charged to the Funds by
Defendants were excessive.
As set forth, supra, no Fund under
either the Lipper analysis or Dr. Hubbard’s analysis ever fell
into even the bottom tenth percentile.
While it is inescapably
true that some of these peers may not operate under an arm’slength fee agreement, either, nothing Plaintiffs have put
forward has undermined the generally median fee levels of the
Funds as opposed to their competitors.
Under this evidentiary
showing, the Court rules that this factor weighs in favor of
finding against Plaintiff.
B. Weighing Under Gartenberg
Plaintiffs are correct that the Gartenberg analysis is not
A plaintiff need not triumph with regard to each
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factor – or any particular factor – to demonstrate that a fee is
improper under Section 36(b).
As such, that Plaintiffs did not
present evidence with regard to certain of the factors does not
doom Plaintiffs’ claims, although it certainly moves them no
closer to meeting their burden of proof.
In addition to the above, this Court had already determined
that the independence and conscientiousness of the Board cut in
favor of Defendants.
Further, Plaintiffs have elected to
present minimal evidence with regard to comparative fee
structures, fall out benefits, or economies of scale.
leaves a determination by the Court whether Plaintiffs have
demonstrated that the fee is so disproportionate that it could
not be one that was negotiated at arms’ length based upon a
select few of the Gartenberg considerations.
not done so.41
The Court also notes that Plaintiffs have advanced an
alternate theory that, even if the Court considers the services
performed by Wellington in evaluating the fee, the Defendants
have still violated the ICA because of the disparity between
Defendants’ and Wellington’s profit margins, the Funds’
performance against the benchmarks, and the generally high
profits. The Court disagrees. It remains unexplored in the
record why Wellington’s profit margin can (or should) be
compared to Defendants. Benchmarks still remain one of several
methods by which performance is analyzed. The generally high
profit numbers are insufficient. Kalish, 742 F. Supp. at 1237
(noting it is insufficient to argue a defendant “just plain made
too much money.”).
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As noted above, the Court has determined that the nature of
the services provided by Defendants, the quality of those
services, and Defendants’ profitability do not suggest that the
fee is so disproportionate that it could not have been
negotiated at arm’s-length.42
carried their burden of proof.
is therefore proper.
Accordingly, Plaintiffs have not
Judgment in favor of Defendants
An appropriate Order will follow.
DATED: February 28, 2017
s/Renée Marie Bumb
RENÉE MARIE BUMB
UNITED STATES DISTRICT JUDGE
The singular poor performance of the Hartford Balanced Fund
does not outweigh the remaining factors, which weigh in favor of
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