Gallus v. Ameriprise Financial: Deepening the Circuit Split on the Standard of Review on Fund Advisor Fees

The Eighth Circuit’s enhanced interpretation of Gartenberg cuts the divide among circuit courts even deeper on the issue of a court’s proper analysis of mutual fund advisory fees under Section 36(b). In John E. Gallus v. Ameriprise Financial, 561 F.3d 816 (8th Cir. 2009), the Court upheld the Gartenberg analysis, but added that a court can consider any discrepancy between the rates advisors charge institutional investors and the rates they charge ordinary retail investors to determine whether the advisor’s fees are excessive in violation of the Investment Company Act of 1940. The opinion clearly contradicts the holding of Jones v. Harris Associates, currently pending review before the U.S. Supreme Court, which held that, generally, the market, not the courts, should determine the reasonableness of rates. The Gallus opinion sounds similar to Judge Posner’s dissent from the Seventh Circuit’s denial of rehearing in Jones, leading some pundits to wonder whether it foreshadows the Supreme Court’s future decision on the issue.

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Josh Lawler

Joel B. Ginsberg

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