mutual funds

Issues

This case asks the Court to determine whether Congress created an implied private right of action under the Investment Company Act (“ICA”) of 1940, by stating in Section 47(b) that a court “may not deny rescission at the instance of any party.” Petitioners argue that Congress did not intend to grant private parties the right to sue, as Congress would have explicitly stated a private right in the ICA had they intended to include one. Additionally, Petitioners argue that the words of the statute themselves do not imply a private right of action. Respondents contend that Congress’s use of “rights-creating language” in the statute demonstrated its intent to create a private right of action and assert that the plain text of the statute does in fact explicitly state this right. This case touches on important questions regarding the separation of powers between federal branches of government and the impact of ICA enforcement on the market.

Questions as Framed for the Court by the Parties

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Issues

In 2004, Jerry Jones sued Harris Associates, L.P. under § 36(b) of the Investment Company Act for breach of its fiduciary duty with respect to the fees it receives for advising mutual funds of which Jones was a shareholder. Harris Associates created and advised the mutual funds in question. The board of trustees for the mutual funds approved the fees Harris Associates received. Jones’s case was dismissed on summary judgment in the Northern District of Illinois. The district court applied the Second Circuit’s Gartenberg v. Merrill Lynch Asset Management, Inc. standard to analyze the advising fees and found that the fees could have been the product of a normal, arms-length negotiation. The Seventh Circuit affirmed, but rejected the Gartenberg standard, and adopted a more lenient standard that allows court interference in fee arrangements only when there is evidence that the adviser failed to disclose relevant information or misled the board during fee negotiations. The Supreme Court’s decision will define the contours of a mutual fund adviser’s fiduciary duty with regard to compensation.

Questions as Framed for the Court by the Parties

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Issues

Jonathan Zang and Jackie Hosang Lawson sued their respective Fidelity employers, alleging that the companies retaliated against them for reporting what they believed to be securities law violations. Section 1514A of the Sarbanes-Oxley Act protects employees of public companies from retaliation after the employee “blows the whistle” on the company. Zang and Lawson argue that § 1514A should also apply to employees of private contractors and subcontractors contracting with public companies, since these employees may be in the best position to report problems. FMR LLC argues that Congress only intended § 1514A to apply to public employees, and that extending coverage would result in an unmanageable amount of litigation. The First Circuit ruled that § 1514A protects only public employees, and that Congress must expand coverage if it wants to cover employees of private contractors. The Supreme Court will address whether and to what extent Sarbanes-Oxley provisions apply to private companies. The Court’s decision will impact employees of private companies that contract with public companies, and whether private employees will be protected from retaliation if they report securities violations to the Securities Exchange Commission.

Questions as Framed for the Court by the Parties

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