No shareholder has won a lawsuit against a mutual fund company on excessive fees since the standard for arms-length negotiations was set by Gartenberg v. Merrill Lynch in 1982, and the Jones v. Harris Associates case scheduled to be heard by the Supreme Court on Monday is not expected to reverse that.
Harris is likely to rely on the standard argument that boards negotiate fees fairly at arms’ length, that the industry is highly competitive, that retail investors demand more service and therefore should pay higher fees and, finally, that the Gartenberg case sets a precedent that would be dangerous to go against as it would merely result in a rash of lawsuits and, ironically, higher fees.
Nonetheless, some believe that even if the fund industry wins the case, as appears to be the consensus, the fact that the Supreme Court is hearing the case at all is precedent-setting. As former industry veteran Dan Calabria tells USA Today, “This could be a crack in the façade for the industry.”
However, it’s almost certain that should Jones et al win the case against Harris and its Oakmark Funds, the defendants will either appeal the case back in the 7th Circuit Court, from which it was appealed, or the Supreme Court will require funds to provide better detail on their fees.