Zehrer v. Harbor Capital Advisors



 

A shareholder in the Harbor International Fund filed a complaint against Harbor Capital Advisors on February 4, 2014, alleging improper and excessive fees as a result of the Fund's use of sub-advisers.  The complaint was filed in U.S. District Court for the Northern District of Illinois.

 

The complaint states that Harbor Capital delegates almost all of its investment management duties to a sub-adviser, Northern Cross LLC, while retaining a substantial portion of the fees that it charges the Harbor International Fund. For example, in fiscal year 2012, Harbor International Fund paid Harbor Capital more than $225 million in investment management fees. Of that sum, Harbor Capital paid Northern Cross just under $125 million for sub-advisory services, retaining approximately $100.5 million for itself, despite doing minimal, if any, work, according to the complaint.

 

The plaintiff seeks damages resulting from the breaches of fiduciary duties by Harbor Capital, including the amount of excessive compensation and payments received by Harbor Capital and the rescission of the contracts that form the basis for the excessive and illegal fees, according to the complaint.

 

On March 31, 2014, Harbor Capital Advisors filed a motion to dismiss the plaintiff's complaint.  In its motion, Harbor argues, in part, that the plaintiff cannot pursue a derivative claim on behalf of the Harbor International Fund without first making a formal demand of the Independent Trustees of the Fund.  On April 8, 2014, Harbor filed a second motion to dismiss the complaint.  This motion states that the plaintiff failed to allege facts that: (1) call into question the independence or thoroughness of the Independent Trustees; and (2) create an inference that Harbor charged an excessive fee under the other Gartenberg factors.

 

The Court denied the motion to dismiss on November 18, 2014.  The memorandum opinion stated that the plaintiff has pleaded adequate facts for the court to conclude he has a plausible claim that Harbor Capital's fee is so "disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining." 

 

This case has been consolidated with Tumpowsky v. Harbor Capital Advisors, Inc. and an amended complaint on the consolidated action has been filed.

 

After a period for discovery, Harbor filed a motion for summary judgment in September 2016.  The plaintiff responded and Harbor filed a reply brief in November 2016.

 

  • Harbor Files Reply Brief
    Harbor argues in its reply brief, filed on November 21, 2016, that the Investment Company Act does not allow a plaintiff to recover based on a theory that only a portion of the advisory fee charged by the advisor is excessive, in circumstances where the fee as a whole is well within the range of fees that might have been produced through arm's length bargaining.
  • Plaintiffs Respond to Summary Judgment Motion
    In their November 2016 response to the motion for summary judgment, the plaintiffs state that the evidence establishes that there are genuine disputes over material facts that preclude summary judgment.
  • Harbor Files Motion for Summary Judgment
    In its September 2016 motion for summary judgment, Harbor states that the management fees paid by the funds are at the "lower end of the range of fees paid by other comparable mutual funds to their investment advisers."
  • Plaintiffs File Consolidated Amended Complaint
    The Zehrer case has been consolidated with Tumpowsky v. Harbor Capital Advisors, Inc. and the plaintiffs filed an amended complaint in this consolidated action on December 22, 2014.
  • Court Denies Motion to Dismiss the Case
    On November 18, 2014, the Court denied Harbor Capital's motion to dismiss. The memorandum opinion stated that the plaintiff has pleaded adequate facts for the court to conclude that he has a plausible claim that Harbor Capital's fee is excessive.
  • Harbor Files Reply Brief on Motion to Dismiss
    On June 10, 2014, Harbor filed a reply brief on its motion to dismiss the case. Harbor argues that the plaintiff's allegations are insufficient to state a plausible claim that Harbor received an excessive advisory fee.
  • Plaintiff Files Brief in Opposition to Motion to Dismiss
    On May 20, 2014, the plaintiff filed a brief opposing the motion to dismiss. In his brief, the plaintiff argues that the motion should be denied because the defendant is making fact-based arguments that should be resolved at trial.
  • Harbor Files Second Motion to Dismiss the Complaint
    On April 8, 2014, Harbor filed a second motion to dismiss the complaint. This motion states that the plaintiff failed to allege facts that: (1) call into question the independence or thoroughness of the Independent Trustees; and (2) create an inference that Harbor charged an excessive fee under the other Gartenberg factors.
  • Harbor Files Motion to Dismiss the Complaint
    On March 31, 2014, Harbor Capital Advisors filed a motion to dismiss the plaintiff's complaint. In its motion, Harbor argues, in part, that the plaintiff cannot pursue a derivative claim on behalf of the Harbor International Fund without first making a formal demand on the Independent Trustees of the Fund.
  • Shareholder Files Excessive Fee Complaint Against Harbor Capital Advisors
    On February 4, 2014, a shareholder in the Harbor International Fund filed an excessive fee complaint against Harbor Capital Advisors in U.S. District Court for the Northern District of Illinois. The complaint alleges that Harbor Capital Advisors collected more than $200 million in investment management fees in fiscal year 2012, delegated investment management responsibilities to a sub-adviser for a fraction of the fees it collected, and kept for itself more than $100 million in fees for minimal oversight work.

 

A shareholder in the Harbor International Fund filed a complaint against Harbor Capital Advisors on February 4, 2014, alleging improper and excessive fees as a result of the Fund's use of sub-advisers.  The complaint was filed in U.S. District Court for the Northern District of Illinois.

 

The complaint states that Harbor Capital delegates almost all of its investment management duties to a sub-adviser, Northern Cross LLC, while retaining a substantial portion of the fees that it charges the Harbor International Fund. For example, in fiscal year 2012, Harbor International Fund paid Harbor Capital more than $225 million in investment management fees. Of that sum, Harbor Capital paid Northern Cross just under $125 million for sub-advisory services, retaining approximately $100.5 million for itself, despite doing minimal, if any, work, according to the complaint.

 

The plaintiff seeks damages resulting from the breaches of fiduciary duties by Harbor Capital, including the amount of excessive compensation and payments received by Harbor Capital and the rescission of the contracts that form the basis for the excessive and illegal fees, according to the complaint.

 

On March 31, 2014, Harbor Capital Advisors filed a motion to dismiss the plaintiff's complaint.  In its motion, Harbor argues, in part, that the plaintiff cannot pursue a derivative claim on behalf of the Harbor International Fund without first making a formal demand of the Independent Trustees of the Fund.  On April 8, 2014, Harbor filed a second motion to dismiss the complaint.  This motion states that the plaintiff failed to allege facts that: (1) call into question the independence or thoroughness of the Independent Trustees; and (2) create an inference that Harbor charged an excessive fee under the other Gartenberg factors.

 

The Court denied the motion to dismiss on November 18, 2014.  The memorandum opinion stated that the plaintiff has pleaded adequate facts for the court to conclude he has a plausible claim that Harbor Capital's fee is so "disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining." 

 

This case has been consolidated with Tumpowsky v. Harbor Capital Advisors, Inc. and an amended complaint on the consolidated action has been filed.

 

After a period for discovery, Harbor filed a motion for summary judgment in September 2016.  The plaintiff responded and Harbor filed a reply brief in November 2016.

 

Document Title: 
Harbor Files Reply Brief
Document Desc: 
Harbor argues in its reply brief, filed on November 21, 2016, that the Investment Company Act does not allow a plaintiff to recover based on a theory that only a portion of the advisory fee charged by the advisor is excessive, in circumstances where the fee as a whole is well within the range of fees that might have been produced through arm's length bargaining.
Document Title: 
Plaintiffs Respond to Summary Judgment Motion
Document Desc: 
In their November 2016 response to the motion for summary judgment, the plaintiffs state that the evidence establishes that there are genuine disputes over material facts that preclude summary judgment.
Document Title: 
Harbor Files Motion for Summary Judgment
Document Desc: 
In its September 2016 motion for summary judgment, Harbor states that the management fees paid by the funds are at the "lower end of the range of fees paid by other comparable mutual funds to their investment advisers."
Document Title: 
Plaintiffs File Consolidated Amended Complaint
Document Desc: 
The Zehrer case has been consolidated with Tumpowsky v. Harbor Capital Advisors, Inc. and the plaintiffs filed an amended complaint in this consolidated action on December 22, 2014.
Document Title: 
Court Denies Motion to Dismiss the Case
Document Desc: 
On November 18, 2014, the Court denied Harbor Capital's motion to dismiss. The memorandum opinion stated that the plaintiff has pleaded adequate facts for the court to conclude that he has a plausible claim that Harbor Capital's fee is excessive.
Document Title: 
Harbor Files Reply Brief on Motion to Dismiss
Document Desc: 
On June 10, 2014, Harbor filed a reply brief on its motion to dismiss the case. Harbor argues that the plaintiff's allegations are insufficient to state a plausible claim that Harbor received an excessive advisory fee.
Document Title: 
Plaintiff Files Brief in Opposition to Motion to Dismiss
Document Desc: 
On May 20, 2014, the plaintiff filed a brief opposing the motion to dismiss. In his brief, the plaintiff argues that the motion should be denied because the defendant is making fact-based arguments that should be resolved at trial.
Document Title: 
Harbor Files Second Motion to Dismiss the Complaint
Document Desc: 
On April 8, 2014, Harbor filed a second motion to dismiss the complaint. This motion states that the plaintiff failed to allege facts that: (1) call into question the independence or thoroughness of the Independent Trustees; and (2) create an inference that Harbor charged an excessive fee under the other Gartenberg factors.
Document Title: 
Harbor Files Motion to Dismiss the Complaint
Document Desc: 
On March 31, 2014, Harbor Capital Advisors filed a motion to dismiss the plaintiff's complaint. In its motion, Harbor argues, in part, that the plaintiff cannot pursue a derivative claim on behalf of the Harbor International Fund without first making a formal demand on the Independent Trustees of the Fund.
Document Title: 
Shareholder Files Excessive Fee Complaint Against Harbor Capital Advisors
Document Desc: 
On February 4, 2014, a shareholder in the Harbor International Fund filed an excessive fee complaint against Harbor Capital Advisors in U.S. District Court for the Northern District of Illinois. The complaint alleges that Harbor Capital Advisors collected more than $200 million in investment management fees in fiscal year 2012, delegated investment management responsibilities to a sub-adviser for a fraction of the fees it collected, and kept for itself more than $100 million in fees for minimal oversight work.