Jones v. Harris Associates, L.P.

Issues

Can an investment adviser for a mutual fund violate its fiduciary duty with respect to compensation imposed by the Investment Company Act when the adviser accepts a fee that has been duly approved by the fund’s directors?

 

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

Congress enacted the Investment Company Act of 1940 to mitigate the conflicts of interest inherent in the relationship between investment advisers and the mutual funds they create and manage. See Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 536 (1984). Section 36(b) of that Act imposes on investment advisers "a fiduciary duty with respect to the receipt of compensation for services" and authorizes fund shareholders to bring a claim for "breach of [that] fiduciary duty." 15 U.S.C. § 80a- 35(b). The Act further provides that, in such an action, "approval by the board of directors" of the fund is not conclusive, but "shall be given such consideration by the court as is deemed appropriate under all the circumstances." Id. § 80a-35(b)(2).

The question presented is:

Whether the court below erroneously held, in conflict with the decisions of three other circuits, that a shareholder's claim that the fund's investment adviser charged an excessive fee - more than twice the fee it charged to funds with which it was not affiliated - is not cognizable under §36(b), unless the shareholder can show that the adviser misled the fund's directors who approved the fee.

Petitioners Jerry and Mary Jones, and Arline Winerman (collectively, “Jones”) were owners of shares in three separate mutual funds in the Oakmark group of funds. See Jones v. Harris Assocs. L.P., No. 1:04-cv-08305, at *1–2 (N.D. Ill. Feb.

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John R. Sand & Gravel Co. v. United States

Issues

Whether the statute of limitations in the Tucker Act limits the subject matter jurisdiction of the U.S. Court of Federal Claims?

 

John R. Sand & Gravel Co. (“JRS”) brought a takings claim against the United States government in the U.S. Court of Federal Claims pursuant to the Tucker Act. The United States filed a motion to dismiss the action, claiming that JRS filed the suit after the Tucker Act’s six-year statute of limitations expired. The United States Court of Federal Claims denied the motion to dismiss. The U.S. Court of Appeals for the Federal Circuit vacated the decision of the lower court because it found that the Court of Claims lacked jurisdiction to hear the claim, even though neither party raised the issue of jurisdiction; it was raised by a group of interested third parties in an amicus brief.  The Federal Circuit, agreeing with the amicus brief, dismissed the case, finding that the statute of limitations was a jurisdictional issue that the court could raise sua sponte, or on its own, and that JRS brought the claim too late. JRS argues that the plain language of the statute shows that the statute of limitations is not a jurisdictional issue and the court could not raise the issue sua sponte.  JRS relies on the legislative history of the Tucker Act to support its point. Conversely, the United States government argues that because the statute of limitations is part of Congress’s waiver of sovereign immunity, it does limit the jurisdiction of the court. While the issue in this case is narrow, the Court’s decision may help in delineating where the Court draws the line between which issues are jurisdictional and which are not.

Questions as Framed for the Court by the Parties

The statute of limitations in the Tucker Act, 28 U.S.C. § 2501, provides: “Every claim of which the United States Court of Federal Claims has jurisdiction shall be barred unless the petition thereon is filed within six years after such claim first accrues.”  The question presented is:  Whether the statute of limitations in Tucker Act limits the subject matter jurisdiction of the U.S. Court of Federal Claims.

In 1969, John R. Sand & Gravel Co. (“JRS”) signed a 50 year lease for a 158-acre tract of land in Michigan. John R. Sand & Gravel Co. v. United States, 457 F.3d 1345, (Fed. Cir.

Acknowledgments

The authors would like to thank Professor Kevin Clermont for his insights into this case.

Additional Resources

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Jimenez v. Quarterman

Issues

When a court finds that a defendant lost his right of direct appeal because of a violation of his Sixth Amendment right to effective assistance of counsel, and accordingly reinstates his appeal, does the time to seek federal habeas review run from the conclusion of the reinstated proceedings?

 

Carlos Jimenez was convicted of burglary and, due to a prior felony, received an enhanced sentence of forty-three years in prison. Jimenez appealed to the Texas Third Court of Appeals, but through no fault of his own, was unaware that his appeal was denied until after the statute of limitations expired for him to appeal to the Texas Court of Criminal Appeals. In order to remedy this, the Texas Court of Criminal Appeals granted Jimenez a reinstated appeal, which essentially tolled the statute of limitations for purposes of direct review in state court. After exhausting all state remedies, the United States Court of Appeals for the Fifth Circuit denied Jimenez’s federal petition for habeas corpus, stating that for purposes of the Antiterrorism and Effective Death Penalty Act, 28 U.S.C. 2244(d)(1)(A), “direct review” ended when he initially failed to timely appeal the decision of the Third Court of Appeals, not when his reinstated appeal was exhausted. The United States Supreme Court will decide whether the reinstated appeal tolled the statute of limitations until the completion of the reinstated direct review for purposes of 28 U.S.C. 2244(d)(1)(A).

Questions as Framed for the Court by the Parties

Whether a Certificate of Appealability should have issued pursuant to Slack v. McDaniel, 529 U.S. 473, 482, 120 S.Ct. 1595, 1604 (2000) on the question of whether pursuant to 28 U.S.C. § 2244 (d)(1)(A) when through no fault of the petitioner, he was unable to obtain a direct review and the highest State Court granted relief to place him back to original position on direct review, should the 1-year limitation begin to run after he has completed that direct review resetting the 1- year limitations period?

Because the underlying cases are unpublished, the following facts are taken from the parties’ briefs.

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Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A.

Issues

Whether a mistake of law made by a debt collector allows it to avoid liability by asserting a bona fide error defense under the Fair Debt Collection Practices Act.

 

In 2006, Respondents Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A. et al. (“Carlisle”) served Petitioner Karen Jerman with a notice of collection, which included a provision requiring the debtor to dispute the debt in writing.   Carlisle based  the provision on their understanding of current Sixth Circuit case law interpreting the Fair Debt Collection Practices Act (“FDCPA”). The district court concluded that the FDCPA, which governs debt collection practices, does not require the plaintiff to dispute the debt in writing and  consequently  the notice violated the Act. However, the court granted Carlisle immunity under the FDCPA’s “bona fide error defense,” which protects debt collectors from penalties for unintentional violations of the FDCPA. Jerman contends that the defense does not include violations resulting from legal errors such as misinterpretations of the statute. Carlisle counters that the Sixth Circuit ruling should be upheld because the plain language of the statute includes legal errors under the defense. This decision will potentially resolve a circuit split on this issue.  It may also impact professional responsibility standards for attorneys involved in debt collecting and the incentives of individuals to bring suit against debt collectors where areas of the law are unsettled.

Questions as Framed for the Court by the Parties

Whether a debt collector's legal error qualifies for the bona fide error defense under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692.

The Fair Debt Collection Practices Act (“FDCPA”) governs debt-collection policies but also protects debt collectors who unintentionally violate the Act. A debt collector may avoid liability for an FDCPA violation by “show[ing] by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” 28 U.S.C. § 1692(k)(c).

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Janus Capital Group v. First Derivative Traders

Issues

Whether, in a private right-of-action, primary liability applies to an investment adviser for alleged participation in the issue of material misstatements by the client funds that it advises despite the lack of aiding-and-abetting liability claims in private actions under Section 10(b) of the Securities Exchange Act of 1934 and Security Exchange Commission Rule 10b-5.

 

A 2003 investigation by the New York State Attorney General revealed that Janus Capital Management, an investment adviser, had secretly allowed several hedge funds to engage in market-timing trades using the assets of the Janus Investment Fund, which were publicly marketed toward long-term investors. Subsequently, First Derivative Traders, a stockholder in Janus Capital Management’s parent company, brought a private securities fraud action against the Janus companies, alleging that Janus Capital Management was responsible for misleading statements in the Janus Funds’ prospectuses. Though Janus Capital Management argued that its status as a mere outside service provider precluded liability, the Fourth Circuit allowed First Derivative Traders to move forward with its claim. In a decision that will affect the scope of secondary liability in private securities-fraud actions, the Supreme Court is now asked to decide whether an investment adviser can be held responsible for misstatements that appear in its client’s offering documents.

Questions as Framed for the Court by the Parties

There is no aiding-and-abetting liability in private actions brought under Section 10(b) of the Securities Exchange Act of 1934. Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994). Thus, a service provider who provides assistance to a company that makes a public misstatement cannot be held liable in a private securities-fraud action. Stoneridge Inv. Partners, LLC v. Scientific- Atlanta, Inc., 128 S. Ct. 761 (2008). In the decision below, however, the Fourth Circuit held that an investment adviser who allegedly "helped draft the misleading prospectuses" of a different company, ''by participating in the writing and dissemination of [those] prospectuses," can be held liable in a private action "even if the statement on its face is not directly attributed to the [adviser]." App., infra, 17a- 18a, 24a (emphases added). The questions presented are:

1. Whether the Fourth Circuit erred in concluding-in direct conflict with decisions of the Fifth, Sixth, and Eighth Circuits-that a service provider can be held primarily liable in a private securities fraud action for "help[ing]" or "participating in" another company's misstatements.

2. Whether the Fourth Circuit erred in concluding-in direct conflict with decisions of the Second, Tenth, and Eleventh Circuits-that a service provider can be held primarily liable in a private securities-fraud action for statements that were not directly and contemporaneously attributed to the service provider.

On September 3, 2003, New York Attorney General Eliot Spitzer filed a complaint against a hedge fund for making secret arrangements with Janus Capital Management (“JCM”) to benefit from market-timing. See First Derivative Traders v. Janus Capital Group, Inc., 566 F.3d 111, 128 (4th Cir.

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Acknowledgments

The authors would like to thank Professor Charles Whitehead for his insights into this case.

Additional Resources

· New York Times, Peter J. Henning: The Hurdles to Suing Outside Advisers for Fraud (Oct. 27, 2010).

· Wall Street Journal, Brent Kendall: High Court Requests White House Views on Janus Appeal (Jan. 11, 2010)

· American Economic Association Papers and Proceedings, Eric Zitzewitz: How Widespread is Late Trading in Mutual Funds?

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James v. United States

Issues

Whether attempted burglary is a felony that presents a serious potential risk of physical injury to another person, and thus is subject to the 15-year mandatory minimum sentencing requirements for violent felonies under 18 U.S.C. § 924(e).

 

Alphonso James was convicted four times between 1997 and 2003: once for attempted burglary, twice for drug offenses, and the last time for illegal possession of a firearm. At the sentencing for his firearm offense the government argued that under the Armed Career Criminal Act a 15 year mandatory minimum sentence should be applied because James had three prior convictions for a violent felony and serious drug offenses. James is contesting the classification of attempted burglary as a violent felony, and the issue is now before the U.S. Supreme Court. The government argues that attempted burglary presents a serious potential risk of physical injury to another person and thus fits one of the statutory definitions of a violent felony. James argues that determining whether his attempted burglary presented the specified risk would require the court to conduct impermissible fact-finding in opposition to the Court’s rulings in Taylor v. United States and Shepard v. United States. James also makes a statutory construction argument to support the exclusion of attempted burglary from the definition of a violent felony. Both the District Court for the Middle District of Florida and the Eleventh Circuit ruled that attempted burglary was a violent felony. If the Supreme Court upholds those rulings, more felons will be subject to this federal modified “three strikes” rule, thus adding fuel to the national debate about mandatory minimums and increasing prison populations.

    Questions as Framed for the Court by the Parties

    Whether the Eleventh Circuit erred  by  holding that all convictions in Florida for attempted burglary qualify as a violent felony under 18  U.S.C. ?  924(e), creating a circuit conflict on the issue.

    In June of 1997, Alphonso James, Jr.

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    J.D.B. v. North Carolina

    Issues

    Does the age of an individual questioned by police affect whether that individual is in custody and must receive Miranda warnings?

     

    Petitioner J.D.B. was a thirteen-year-old boy suspected of being involved in two break-ins. The police questioned him while he was at school without giving him a Miranda warning, and J.D.B. made incriminating statements. At his trial, J.D.B. moved to suppress those statements, arguing that he had been subjected to custodial interrogation under Miranda v. Arizona. Specifically, J.D.B. argued that a court should take account of his age when determining whether he was in custody. The North Carolina trial court and appellate courts all held that J.D.B. was not in custody for purposes of Miranda and allowed the statements into evidence. J.D.B. was convicted, placed on 12 months’ probation, and ordered to pay restitution. J.D.B. appealed to the Supreme Court, arguing that age should be a factor in determining whether he was in custody for Miranda purposes. North Carolina contends that age is a subjective factor and should not be part of the objective custody inquiry. This case will determine what personal characteristics should be considered when determining whether a subject is in custody, and, therefore, whether a Miranda warning is necessary prior to questioning.

    Questions as Framed for the Court by the Parties

    Whether a court may consider a juvenile's age in a Miranda custody analysis in evaluating the totality of the circumstances and determining whether a reasonable person in the juvenile's position would have felt he or she was not free to terminate police questioning and leave?

    On September 24, 2005, police spotted and interviewed Petitioner J.D.B. in the vicinity of two break-ins in Chapel Hill, North Carolina. See In re J.D.B., 686 S.E.2d 135, 136 (N.C.

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    Additional Resources

    · Education Week, Mark Walsh: High Court to Weigh Miranda Rights of Juveniles at School (Nov. 1, 2010)

    · All Business, Kimberly Atkins: U.S. Supreme Court to Consider Miranda Age Factor (Nov. 1, 2010)

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    J. McIntyre Machinery, LTD v. Nicastro

    Issues

    Where a foreign manufacturer has an exclusive distribution agreement with an independent company in the United States, does national distribution provide sufficient contacts to subject that manufacturer to personal jurisdiction in a products liability suit in a state the defendant does not explicitly target as a market for its products?

    Robert Nicastro injured his hand in a shearing machine manufactured by J. McIntyre Machinery Ltd. (“McIntyre”), a British company with no physical American presence. See Nicastro v. McIntyre Machinery America, 399 N.J. Super. Ct. App. Div. 539, 545. McIntyre Machinery America (“MMA”), McIntyre’s exclusive U.S.

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    Additional Resources

    · Forbes.com, James Beck: On the Docket—Inside the Courtroom (Oct. 22, 2010)

    · Industry Week, Keith Wilson: “Equalizing” the Playing Field with Foreign Manufacturers (Feb. 10, 2010)

    · Robb & Robb: Suing Foreign Product Manufacturers

    ·The Supreme Court will hear this case in tandem with Goodyear Dunlop Tires Operations v. Brown, which concerns state general personal jurisdiction over a foreign manufacturer whose products occasionally enter the state through its global parent company.

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