Goodman et al v. J.P. Morgan Investment Management, Inc.

Filing 75

OPINION AND ORDER granting in part and denying in part (32) Motion to Dismiss for Failure to State a Claim in case 2:15-cv-02923-GLF-NMK. Signed by Judge Gregory L. Frost on 2/26/2016. Associated Cases: 2:14-cv-00414-GLF-NMK, 2:15-cv-02923-GLF-NMK (kk)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

NANCY GOODMAN, et al.,
Plaintiffs,
Case No. 2:14-cv-414
JUDGE GREGORY L. FROST
Magistrate Judge Norah McCann King

v.
J.P. MORGAN INVESTMENT
MANAGEMENT, INC.,
Defendant.

CAMPBELL FAMILY TRUST, et al.,
Plaintiffs,
Case No. 2:15-cv-2923
JUDGE GREGORY L. FROST
Magistrate Judge Norah McCann King

v.
J.P. MORGAN INVESTMENT
MANAGEMENT, INC., et al.,
Defendants.

OPINION AND ORDER
This matter is before the Court for consideration of the following filings: a motion to
dismiss (ECF No. 32) filed by Defendants JPMorgan Funds Management, Inc. and JPMorgan
Chase Bank, N.A.; a memorandum in opposition (ECF No. 37) filed by Plaintiffs; and a reply
memorandum (ECF No. 38) filed by Defendants JPMorgan Funds Management, Inc. and
JPMorgan Chase Bank, N.A..1 For the reasons that follow, the Court GRANTS IN PART and

1

Unless otherwise noted, all references to docket numbers in this Opinion and Order are

DENIES IN PART the motion to dismiss.
I.

Background

According to the complaint filed in Case No. 2:15-cv-2923, Plaintiffs—Campbell Family
Trust, Jack Hornstein, Anne H. Bradley, Casey Leblanc, Jacqueline Peiffer, Joseph Lipovich,
and Valderrama Family Trust—are all shareholders in one or more of the five mutual funds
involved in this case (“the funds”).2 The funds are: (1) the JPMorgan Mid Cap Value Fund
(“Mid Cap Value Fund”), (2) the JPMorgan Large Cap Growth Fund (“Large Cap Growth
Fund”), (3) the JPMorgan Value Advantage Fund (“Value Advantage Fund”), (4) the JPMorgan
Strategic Income Opportunities Fund (“Strategic Income Opportunities Fund”), and (5) the
JPMorgan US Equity Fund (“US Equity Fund”). For present purposes, these funds can be
broadly described as organized into trusts compromised of numerous mutual funds. The funds
pool money from different investors, and the pooled money is then invested in a portfolio of
securities.
Operation of the funds is wholly conducted by external service providers selected by each
fund’s Board of Trustees. Pursuant to contractual arrangement, established by an Administration
Agreement for each fund, Defendants manage the funds’ portfolio of securities. From their
assets, the funds in turn pay Defendants an annual fee for providing these services. The service
providers here are Defendant J.P. Morgan Investment Management, Inc. (“JPMIM”), the
investment adviser to the Mid Cap Value Fund, the Large Cap Growth Fund, and the Value

to documents filed in Case No. 2:15-cv-2923.
2
The five funds involved in Case No. 2:15-cv-2923 are not the same funds involved in
Case No. 2:14-cv-414. For ease of discussion, the Court shall use “this case” and similar terms
herein as referring to Case No. 2:15-cv-2923 unless otherwise specified.
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Advantage Fund. Defendant JPMorgan Funds Management, Inc. (“JPMFM”) is a JPMIM
affiliate that serves as the administrator to all of the foregoing five funds and receives an annual
fee for providing these services. Finally, Defendant JPMorgan Chase Bank, N.A. (“JPMCB”),
another affiliate of JPMIM, is the sub-administrator of the funds and receives a portion of the
administration fees that JPMFM receives.
In an eight-count complaint, Plaintiffs allege the fees charged by Defendants with respect
to each fund breached a fiduciary duty created under the Investment Company Act of 1940
(“ICA”), 15 U.S.C. § 80a-1 et seq. The crux of the five counts relevant to today’s decision is
that JPMFM has charged the funds greater advisory and administrative fees than other,
unaffiliated mutual funds where rates were negotiated at arm’s length and that JPMCB receives a
portion of the inflated fees paid to JPMFM. Plaintiffs also allege that JPMFM and JPMCB
provide services that overlap with some services also provided to the funds by other entities
(some of which are JPMFM affiliates) so that the funds are paying duplicative fees for select
services. Plaintiffs allege that as a direct, proximate, and foreseeable result of the conduct of
JPMFM and JPMCB, the funds sustained millions of dollars in damages for excessive or
duplicative fees.
Each of the complaint counts at issue here targets an individual fund and sets forth the
purported overcharging. The overcharging is pled by comparing the fees paid under the five
affiliated funds’ actual agreements and the fees that would be paid under two different
agreements for similar but unaffiliated funds. Purportedly, the services provided to all of the
affiliated and unaffiliated funds are essentially the same so that any de minimis variations in
service cannot explain away the fee differences. Additionally, Plaintiffs allege that comparing
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the fee rates charged to unaffiliated funds by other administrators, specifically State Street Bank
& Trust Company (“State Street”) and U.S. Bancorp Fund Services, LLC (“US Bank”), indicates
that the JPMorgan administrative fees are higher than the fees charged by these other
administrators.
In Count IV of the complaint, Plaintiffs target the Mid Cap Value Fund and allege that
the effective net administration fee rate for this fund is 0.055%, which amounted to
administration fees of $8,795,000 for the most recent fiscal year. Plaintiffs allege that this
constitutes $8,109,000 in greater fees than those that would be charged under the agreement
terms given to ProShares Funds, an unaffiliated fund, and $7,106,000 in greater fees than those
that would be charged under the agreement terms given to EQ Funds, another unaffiliated fund.
Plaintiffs also allege that this constitutes $7,202,000 in greater fees than those that would be
charged by State Street and $6,486,000 in greater fees than those that would be charged by US
Bank.
In Count V, Plaintiffs make similar allegation regarding the Large Cap Growth Fund,
alleging that the effective fee rate was 0.082%, which amounted to $12,653,000 in fees for the
most recent fiscal year. Plaintiffs allege that this constitutes $11,980,000 in greater fees than
those that would be charged under the ProShares Funds’ agreement terms and $11,004,000 in
greater fees than those that would be charged under the EQ Funds’ agreement terms. Plaintiffs
also allege that this constitutes $11,115,000 in greater fees than those that would be charged by
State Street and $10,422,000 in greater fees than those that would be charged by US Bank.
In Count VI, Plaintiffs target the Value Advantage Fund, alleging that the effective fee
rate for this fund is 0.063%, which amounted to $6,136,000 in fees for the most recent fiscal
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year. Plaintiffs allege that this constitutes $5,606,000 in greater fees than those that would be
charged under the ProShares Funds’ agreement terms and $4,830,000 in greater fees than those
that would be charged under the EQ Funds’ agreement terms. Plaintiffs also allege that this
constitutes $5,167,000 in greater fees than those that would be charged by State Street and
$4,731,000 in greater fees than those that would be charged by US Bank.
In Count VII, Plaintiffs target the Strategic Income Opportunities Fund, alleging that the
effective fee rate was 0.053%, which amounted to $13,701,000 in fees for the most recent fiscal
year. Plaintiffs allege that this constitutes $12,771,000 in greater fees than those that would be
charged under the ProShares Funds’ agreement terms and $11,280,000 in greater fees than those
that would be charged under the EQ Funds’ agreement terms. Plaintiffs also allege that this
constitutes $11,133,000 in greater fees than those that would be charged by State Street and
$9,977,000 in greater fees than those that would be charged by US Bank.
In Count VIII, Plaintiffs target the US Equity Fund, alleging that the effective fee rate
was 0.081%, which amounted to $9,762,000 in fees for the most recent fiscal year. Plaintiffs
allege that this constitutes $9,172,000 in greater fees than those that would be charged under the
ProShares Funds’ agreement terms and $8,309,000 in greater fees than those that would be
charged under the EQ Funds’ agreement terms. Plaintiffs also allege that this constitutes
$8,554,000 in greater fees than those that would be charged by State Street and $8,011,000 in
greater fees than those that would be charged by US Bank.
Counts IV through VIII also incorporate the allegation that the five funds paid in fiscal
year 2015 a combined amount of $71,934,000 in duplicative servicing fees (covering numerous
administrative services). These five counts further incorporate the allegation that the five funds
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paid in fiscal year 2015 a combined amount of $51,379,000 in duplicative transfer agency fees
(covering the preparation and mailing of various reports and information).
Finally, Plaintiffs allege that the fees Defendants charge were not negotiated at arm’s
length. Plaintiffs allege that there was no negotiation when the Board approved each fund’s
IAA. They also allege that the Board failed to solicit proposals from other advisors and failed to
seek and obtain an IAA provision that would have each of the fee rates be at least as favorable to
the fund as the lowest rate paid by Defendants’ other clients for the same of substantially the
same services.
Defendants JPMFM and JPMCB have filed a motion to dismiss Counts IV, V, VI, VII,
and VIII pursuant to Federal Rule of Civil Procedure 12(b)(6).3 (ECF No. 32.) The parties have
completed briefing on the motion to dismiss, which is ripe for disposition.
II.
A.

Discussion

Standard Involved

Dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) is proper if a complaint
fails to state a claim upon which the Court can grant relief. Consequently, this Court must
construe Plaintiff’s complaint in his favor, accept the factual allegations contained in that
pleading as true, and determine whether the factual allegations present plausible claims. See Bell
Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007). The United States Supreme Court has
explained, however, that “the tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662,

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Defendant JPMIM has filed an answer to Counts I, II, and III, to the three counts
asserted against it. (ECF No. 31.) JPMIM is not a party to the motion to dismiss.
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678 (2009). Thus, “[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Id. Consequently, “[d]etermining whether a complaint
states a plausible claim for relief will . . . be a context-specific task that requires the reviewing
court to draw on its judicial experience and common sense.” Id. at 679.
To be considered plausible, a claim must be more than merely conceivable. Twombly,
550 U.S. at 556; Ass’n of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 548
(6th Cir. 2007). What this means is that “[a] claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. The factual allegations of a pleading
“must be enough to raise a right to relief above the speculative level . . . .” Twombly, 550 U.S. at
555. See also Sensations, Inc. v. City of Grand Rapids, 526 F.3d 291, 295 (6th Cir. 2008).
B.

Analysis

The United States Supreme Court has explained that “to face liability under § 36(b), an
investment adviser must charge a fee that 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 bargaining.” Jones v. Harris Assocs., L.P., 559 U.S. 335, 346 (2010). This inquiry entails
examining all pertinent facts, including the “Gartenberg factors”:
(1) the nature and quality of the services provided to the fund and shareholders;
(2) the profitability of the fund to the adviser; (3) any “fall-out benefits,” those
collateral benefits that accrue to the adviser because of its relationship with the
mutual fund; (4) comparative fee structure (meaning a comparison of the fees
with those paid by similar funds); and (5) the independence, expertise, care, and
conscientiousness of the board in evaluating adviser compensation.
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Id. at 344 n.5. These factors inform review of Plaintiffs’ pleading.
1.

Claims against JPMCB

Plaintiffs assert claims against the sub-administrator, JPMCB, under Section 36(b) of the
ICA, which provides:
[T]he investment adviser of a registered investment company shall be deemed to
have a fiduciary duty with respect to the receipt of compensation for services, or
of payments of a material nature, paid by such registered investment company, or
by the security holders thereof, to such investment adviser or any affiliated person
of such investment adviser.
15 U.S.C. § 80a-35(b). The statutory scheme then provides for a federal claim by shareholders
against an investment adviser for breach of fiduciary duty in regard to the compensation or
payments paid to the investment adviser:
An action may be brought under this subsection . . . by a security holder of such
registered investment company on behalf of such company, against such
investment adviser, or any affiliated person of such investment adviser, or any
other person enumerated in subsection (a) of this section who has a fiduciary duty
concerning such compensation or payments, for breach of fiduciary duty in
respect of such compensation or payments paid by such registered investment
company or by the security holders thereof to such investment adviser or person.
Id. Notably, the statute also provides that “[n]o such action shall be brought or maintained
against any person other than the recipient of such compensation or payments, and no damages
or other relief shall be granted against any person other than the recipient of such compensation
or payments.” 15 U.S.C. § 80a-35(b)(3).
JPMCB moves for dismissal on the grounds that because § 36(b) does not permit a claim
against any person other than the recipient of advisory fees, Plaintiffs have failed to assert a
claim upon which this Court could grant relief. JPMCB reasons that because the complaint fails
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to allege that the five funds paid JPMCB any administration fees, JPMCB fails to qualify as a
recipient. This contention tracks the complaint’s limited factual allegations, which provide that
the administrator, JPMFM, contracted with the sub-administrator, JPMCB, to provide some
services to the funds. Through the sub-administration agreement, JPMFM then pays JPMCB a
percentage of the money that the funds pay to JPMFM.
Plaintiffs concede that the funds do not pay JPMCB. Plaintiffs argue, however, that the
language and intent of § 36(b) permit a claim against indirect recipients of fees, or those entities
paid by other entities that the funds pay directly. To support this argument, Plaintiffs direct this
Court to the language in § 80a-35(b) providing for an action “against [an] investment advisor, or
any affiliated person of such investment adviser.”4 Plaintiffs also conclude that if JPMCB were
not within the scope of § 36(b), it “would enable defendants to avoid liability under § 36(b) by
immediately transferring mutual fund fees from the direct recipient to an affiliated entity.” (ECF
No. 37, at Page ID # 482.)
4

Under the ICA, an “affiliated person” means:

(A) any person directly or indirectly owning, controlling, or holding with power
to vote, 5 per centum or more of the outstanding voting securities of such other
person; (B) any person 5 per centum or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with power to vote,
by such other person; (C) any person directly or indirectly controlling, controlled
by, or under common control with, such other person; (D) any officer, director,
partner, copartner, or employee of such other person; (E) if such other person is
an investment company, any investment adviser thereof or any member of an
advisory board thereof; and (F) if such other person is an unincorporated
investment company not having a board of directors, the depositor thereof.
15 U.S.C. § 80a-2(a)(3). The statutory scheme also provides that an “ ‘[a]ffiliated company’
means a company which is an affiliated person.” 15 U.S.C. § 80a-2(a)(2).
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This Court agrees with JPMCB. Plaintiffs’ argument asks this Court to read into the
statutory scheme more than the plain language of § 80a-35(b) suggests. Section 80a-35(b)(3)
serves to inform the “investment advisor, or any affiliated person of such investment adviser”
language of § 80a-35(b). The “recipient” language means that § 80a-35(b) should be understood
to read “investment advisor, or any affiliated person of such investment adviser who received
such compensation or payments.”
In construing § 80a-35(b), another judge explained:
The statute does not provide for the recovery of any and all monies from anyone
who may have been involved in a breach of fiduciary duty owed to mutual fund
investors. Instead, the statute allows for recovery of advisory compensation from
the person or entity who received it. Where Congress has provided so carefully
for one method of enforcement, courts are not lightly to impute another method.
In re Dreyfus Mut. Funds Fee Litig., 428 F. Supp. 2d 342, 351 (W.D. Pa. 2005). In that case,
plaintiffs were attempting to assert a § 36(b) claim against individuals who were directors of nine
mutual funds. Id. at 344. The directors did not receive direct compensation for investment
advisor services, but received indirect compensation through the salaries received in their jobs.
Id. at 351. There was no allegation that the directors received their compensation for advisory
services or that they were affiliated persons in the § 80a-35(b)(3) sense.
Dreyfus thus provides only limited help in regard to today’s task. The useful takeaway is
recognition that § 80a-35(b) presents a limited claim that does not encompass all indirect receipt
of compensation, but instead looks for receipt of specific compensation within a requisite
relationship. And the unanswered question is then whether § 80a-35(b) presents a limited claim
that encompasses any indirect receipt of compensation. The caveat to applying Dreyfus casually
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to answer that question is that there is no question here that JPMCB is an affiliated entity. See
Dreyfus, 428 F. Supp. 2d at 351 (“There are no allegations that the Director Defendants were
affiliated persons of the advisors under the statute.”).
What matters in this case is that JPMCB is not an affiliated entity that receives direct
compensation. If it were—if, for example, the funds paid JPMCB’s percentage in whole or in
part directly to JPMCB—then this Court would have no issue with JPMCB falling within the
scope of Plaintiffs’ § 36(b) claims. But that is not what Plaintiffs allege happen. Instead, the
funds pay JPMFM and then JPMFM pays JPMCB. Some courts have credited indirect-recipient
§ 36(b) claims. For example, in Halligan v. Standard & Poor’s International, Inc., 434 F. Supp.
1082 (E.D. N.Y. 1977), for example, the court denied a motion to dismiss where the complaint
plead that “[a]ll of the defendants have directly or indirectly received … compensation or
payments” in violation of § 36(b). To extend the reach of § 36(b) to JPMCB, however, would
read out of the statutory scheme any meaning to the language actually employed; such an
approach would render the § 80a-35(b)(3) qualification of little point because there would be no
limit on the indirectness possible to permit a claim. As long as there was some tangential hook
connecting an affiliate’s activity to investment advisory services, however attenuated, there
would be a possible action against the affiliate. That may or may not be good policy, but it is not
what Congress clearly enacted.
Section 80a-35(b) does not simply provide for a claim against an “investment adviser, or
any affiliated person . . . for breach of fiduciary duty in respect of such compensation or
payments paid.” Rather, § 80a-35(b) provides for a claim against an “investment adviser, or any
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affiliated person . . . for breach of fiduciary duty in respect of such compensation or payments
paid by such registered company or by the security holders thereof to such investment adviser or
person.” 15 U.S.C. § 80a-35(b) (emphasis added). The plain language of this portion of the
statute establishes the direct relationship: the payor can sue the payee. The statutory scheme
provides for a claim by a security holder that has paid money to the investment adviser or to the
affiliated person. It does not provide for a claim against a third party based on money paid to or
by a payee that in turn pays the third party.
Other portions of the statute repeat the direct payor-payee relationship. For example, §
80a-35(b) begins by providing that “the investment adviser of a registered investment company
shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services,
or of payments of a material nature, paid by such registered investment company, or by the
security holders thereof, to such investment adviser or any affiliated person of such investment
adviser.” 15 U.S.C. § 80a-35(b) (emphasis added). The payee owes a fiduciary duty to the
payor.
Section 80a-35(b)(3) must be read in conjunction with the statutory language that it
informs. Thus, deleting language not relevant to the present facts, § 80a-35(b) should be
understood to read as follows: an action may be brought under this subsection against such
investment advisor or any affiliated person of such investment adviser who received such
compensation or payments for breach of fiduciary duty in respect of such compensation or
payments paid by such registered company or by the security holders thereof to such investment
adviser or person. This plain-language understanding of the statutory scheme credits the words
used, renders no part of the statutory scheme pointless, and effectuates the clear intent of the
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statutory scheme—to enable those wronged to sue those who owed them a statutorily created
fiduciary duty and breached that duty. This plain-language understanding also entitles JPMCB
to dismissal.
The Court GRANTS JPMCB’s motion to dismiss the claims against it. (ECF No. 32.)
2.

Claims against JPMFM

The administrator, JPMFM, moves for dismissal on the grounds that the contracts upon
which Plaintiffs rely to allege excessive fees actually undercut the contention that the services
provided to the five funds and the unaffiliated funds were the same. JPMFM’s premise is that
comparison of the contracts governing the affiliated funds to the contracts governing other
unaffiliated funds cited in the complaint reveals that the services JPMFM provides to the
affiliated and unaffiliated funds are not the same or substantially similar. According to JPMFM,
the services rendered to the affiliated funds are substantially greater than the services rendered to
the unaffiliated funds, and more services cost more money. Therefore, JPMFM reasons, the
complaint’s allegations of overcharging fail and there is no basis for the § 36(b) claims against
the investment advisor.
Plaintiffs disagree. They argue that the thirteen-page chart that they have attached to the
complaint detailing the substantial overlap of dozens of services provided to both the affiliated
and unaffiliated funds pleads sufficient facts supporting the overcharging allegations. Plaintiffs
also argue that any differences in services provided to the affiliated funds still fail to account for
the higher fees charges to the funds. In other words, the services are essentially the same, and
where they are different, the differences do not justify the purportedly inflated fees.

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At the heart of the parties’ dispute is whether the comparison of services that JPMFM
seeks is appropriate for a Rule 12(b)(6) inquiry. JPMFM argues that it is, asserting that all that is
needed is a document-to-document comparison. Plaintiffs argue that it is not, asserting that the
complaint satisfies the requisite notice-pleading standard and that any meaningful comparison of
the services offered to the various funds that would result in the disposition of claims is evidence
dependent.
A portion of the analysis necessary to resolve the parties’ dispute here overlaps with
reasoning this Court set forth in the consolidated action, Case No. 2:14-cv-414. Applying the
same core approach, this Court concludes that the complaint’s factual allegations are enough to
survive the instant motion to dismiss. This conclusion is informed by guidance from a judicial
officer in another § 36(b) case, who correctly recognized:
Because a claim under § 36(b) need only meet the liberal pleading
standards set forth in Rule 8, it is not necessary for a plaintiff to make a
conclusive showing of each Gartenberg factor to survive a motion to dismiss.
But “a § 36(b) complaint is not sufficient if it rests solely on general and
conclusory legal assertions that the fees charged were excessive.” [Forsythe v.
Sun Life Fin., Inc., 417 F. Supp. 2d 100, 115 (D. Mass. 2006)]. A plaintiff must
allege sufficient facts to plausibly support an inference that the advisory fee is so
disproportionately large as to bear no reasonable relationship to the services
rendered in exchange for the fee.
Zehrer v. Harbor Capital Advisors, Inc., No. 14 C 789, 2014 WL 6478054, at *2-3 (N.D.Ill.
Nov. 18, 2014) (most citations omitted). That same judicial officer went on to explain:
Courts have required that § 36(b) plaintiffs allege facts supporting the
disproportionality of the fees at issue in the suit rather than general facts about the
potential for abuse inherent in the system. See, e.g., Amron v. Morgan Stanley
Inv. Advisors Inc., 464 F.3d 338, 343–44 (2d Cir. 2006) (affirming dismissal of §
36(b) claim where the allegations relied on information about the industry rather
than allegations “pertinent to th[e] relationship between fees and services”)
(quoting Migdal v. Rowe Price–Fleming Int’l, 248 F.3d 321, 327 (4th Cir. 2001))
14

(internal quotation marks omitted). If a plaintiff alleges specific facts about the
fees paid to the defendant and their relationship to the services rendered, courts
have allowed the complaint to survive a motion to dismiss. For example, in
Kasilag v. Hartford Investment Financial Services, LLC, No. 11–1083, 2012 WL
6568409 (D.N.J. Dec. 17, 2012), the plaintiff alleged that the defendant advisor
paid subadvisors to do substantially all of the investment management services for
a third or less of the fee paid by the mutual fund. Id. at *3. Although the
defendant advisor countered that it performed extensive services that were not
delegated to the subadvisor, the court found that the defendant’s argument was
more appropriately addressed at summary judgment and that the plaintiff had
adequately alleged that the fee was excessive. Id.; see also Am. Chem., 2014 WL
5426908, at *7 (finding specific allegations about defendants’ practices regarding
subadvisors, nature of services, economies of scale, and independence of the
board sufficient to survive motion to dismiss); Millenco, 2002 WL 31051604, at
*3 (finding allegations that advisor had “very little to do” because it subcontracted
with another advisor along with other allegations sufficient to survive motion to
dismiss).
Id. at *3. Despite JPMFM’s contrary contention, this analysis is as instructive here as it was in
Case No. 2:14-cv-414.
Plaintiffs have pled a notable disparity in the fees obtained for servicing the five affiliated
funds compared to the services provided to the unaffiliated funds. This is important because it is
the work done and not the label given to the work that will likely and ultimately prove
dispositive of Plaintiffs’ claims. The Court does not even know at this point whether the same
labels used in the different agreements necessarily capture the same work. Also important is the
fact that a simple comparison of lists of services does not provide this Court with sufficient
information to say that the fees charged are proportionate or within the range of what would be
negotiated at arm’s length. The ICA certainly does not guarantee the funds the best deal possible
or even a good deal; instead, it seeks to prevent a deal that falls outside fiduciary responsibilities.
To engage in the consequent inquiry involves assigning the comparison services and fees the

15

weight they are due, a task that depends on evidence and that is ill suited for a decision on a
motion to dismiss.
The common-sense approach mandated by Iqbal therefore leads this Court to conclude
that JPMFM’s argument is more appropriate for summary judgment, if not trial. 556 U.S. at 679
(“Determining whether a complaint states a plausible claim for relief will . . . be a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense.”). Context matters in these types of cases, and simply comparing a laundry list of services
does little to inform this Court of the nature of those services and whether different services
indeed warrant significantly greater fees. The Court has before it the framework for a potentially
dispositive analysis but not the details that would lead to any particular result. Thus, the
evidence-dependent nature of JPMFM’s argument cannot be afforded dispositive force in today’s
motion-to-dismiss context.
Similar to Case No. 2:14-cv-414, the inquiry is not whether Plaintiffs have pled factual
allegations addressing all or even most of the Gartenberg factors or whether Plaintiffs have
disclosed all of the details behind their factual allegations. Instead, the issue is whether, taken as
a whole, Plaintiffs’ complaint pleads sufficient facts about the fees paid to JPMFM and their
relationship to the services rendered to present a plausible claim that the fees are
disproportionately large. The facts pled present inferences that meet this standard.
This Court emphasizes that neither side should read into today’s decision anything
regarding whether the services are the same or substantially the same, or whether different
services do or do not justify the greater fees charged. The Court has no idea at this point. The
curious disparity in fees creates one inference, but it also appears that Plaintiffs have potentially
16

cherry-picked services in assembling their comparison chart and making their related factual
allegations. Subsequent development of these and related points is more appropriate for
summary judgment where evidence may fully explain the services involved and the fees charged
in context, as opposed to in a vacuum at the Rule 12(b)(6) stage. The Court expresses no opinion
here on whether Plaintiffs will be able to produce evidence to meet the notably high standard for
imposition of § 36(b) liability.
The Court DENIES JPMFM’s motion to dismiss the claims against it. (ECF No. 32.)
III.

Conclusion

This Court GRANTS IN PART and DENIES IN PART Defendant’s motion to dismiss.
(ECF No. 32.) The claims against JPMCB are dismissed. The claims against JPMFM remain
pending.
IT IS SO ORDERED.
/s/ Gregory L. Frost
GREGORY L. FROST
UNITED STATES DISTRICT JUDGE

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