Lyman P.Q. Johnson
Supreme Court to Review Jones v. Harris
Listen to Prof. Johnson discuss some of the issues at stake in this dispute over mutual fund advisor fees.
This could change now that the U.S. Supreme Court has agreed to hear arguments next term in a case involving a mutual fund management company and allegations of excessive fees. Washington and Lee School of Law Professor Lyman Johnson has for the last three years served as an expert witness for the plaintiffs in the case, Jones v. Harris, as it moved through the lower courts.
The plaintiffs, a group of three investors, allege that mutual fund manager Harris Associates LP charged excessive advisory fees for a certain group of mutual funds and that these high rates violated the Investment Company Act, which was designed to protect investors and regulate conflicts of interest in investment companies and securities exchanges.
But Johnson points out that no plaintiff has ever won a case under the section of the Act implicated in this case.
"It's striking to me that Congress passes this law to protect investors and nobody ever wins," says Johnson. "In thirty-nine years there is not one plaintiff's verdict."
The U.S. Court of Appeals for the Seventh Circuit decided against the plaintiffs in Jones. In doing so, the Seventh Circuit formulated a new standard that created a split with a Second Circuit decision in the seminal case in this area, Gartentberg v. Merrill Lynch Asset Management Inc. Johnson recently wrote about the Gartenberg standard in a 2008 Vanderbilt Law Review article that is likely to be relied on by investors and those filing amici briefs.
While Gartenberg helped judges determine reasonable fees charged by mutual fund advisors, Chief Judge for the Seventh Circuit Frank Easterbrook wrote in his decision that the market should determine reasonable fees, not judges. Judge Posner disagreed with Easterbrook in a nine page decision.
The high court likely decided to hear the case in order resolve the circuit court split. Johnson believes that Supreme Court interest in investment issues is long overdue, saying, "It's an opportunity for the Supreme Court to get their oar in the water about financial shenanigans."
Lyman P.Q. Johnson is the Robert O. Bentley Professor of Law at the Washington and Lee University School of Law. Professor Johnson teaches and writes about corporate and securities law. His scholarship and expert testimony has been employed in several high profile corporate lawsuits in recent years, including the nation's largest stock options backdating case and a case brought by shareholders of the Walt Disney Company for the way their Board of Directors handled the hiring and firing of Michael Ovitz.