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.