Waddell & Reed Investment Management may have unintentionally created a legal precedent affecting the national mutual fund litigation after last week's lawsuit before U.S. District Judge Kathryn H. Vratil, The Kansas City Star reports.

The proceedings established that a judge, who happened to be a mutual fund investor, does not have to disqualify herself from a case involving other mutual funds on a basis of possible conflict of interests.

Waddell & Reed, a Shawnee Mission, Kan.-based mutual fund manager and distributor, was sued for alleged overcharges on behalf of investors. At the same time, it has come to the company's attention that the case judge is a mutual fund investor with American Century and Janus. Both firms have been named in the ongoing mutual fund scandal.

Consequently, Waddell & Reed tried to switch judges on the basis of her lack of subjectivity. Vratil, in a statement, rejected that accusation, responding: "The fact that a judge has a limited ownership interest in other mutual funds does not establish partiality against the entire mutual fund industry."

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