American Chemicals & Equipment 401(k) Retirement Plan v. Principal Management Corp.



On August 28, 2013, a retirement plan of an Alabama corporation, American Chemicals & Equipment, Inc., filed a complaint in U.S. District Court for the Northern District of Alabama. The complaint alleges that Principal collected excessive management fees from the mutual funds in this retirement plan, in violation of Section 36(b) of the Investment Company Act.

 

According to the complaint, Principal is collecting large management fees for supervising the work of sub-advisers who carry out the day-to-day investment management work of the mutual funds involved. In 2012, Principal retained $80 million out of $120 million collected in fees, while paying only $40 million to the sub-advisers providing the bulk of the investment management services. The plaintiff alleges that Principal is mainly acting as a "fee conduit" for its mutual funds.

 

The plaintiff believes that the amount of advisory fees that Principal is receiving is so disproportionately large that it bears no reasonable relationship to the services rendered in exchange for that fee and could not have been the product of arm's length bargaining, as required by the standards articulated in Jones v. Harris.

 

After Principal filed a Motion to Dismiss and the plaintiff responded, the Court issued an order on January 24, 2014, transferring this case to the Southern District of Iowa, where the Principal Funds are based.

 

On September 10, 2014, the District Court for the Southern District of Iowa denied Principal's Motion to Dismiss.  The Court found that the plaintiff has alleged sufficient facts to state a claim and will now permit the case to move forward.  On February 3, 2016, the Court dismissed the case for lack of standing.  The plaintiffs are not shareholders in the underlying funds paying certain fees to the "fund of funds," in which they are shareholders.

 

The plaintiffs have appealed the dismissal to the 8th Circuit Court of Appeals.  For some reason, the briefs before the 8th Circuit are sealed and not available to the public.  The parties argued their case before an 8th Circuit panel of judges on January 11, 2017, and the Court rendered its decision on July 24, 2017.  The Court affirmed the dismissal of the case by the District Court for lack of standing.

  • 8th Circuit Court of Appeals Affirms District Court Dismissal of Case
    On July 24, 2017, the 8th Circuit Court of Appeals affirmed the dismissal of the case by the District Court for lack of standing. Earlier, the District Court ruled that the American Chemicals retirement plan was not a "security holder" in the Principal target date fund at issue because of its fund of funds structure.
  • Court Dismisses Case on Standing Issue
    On February 3, 2016, the Court dismissed the case on a standing issue. The plaintiffs are not shareholders in the underlying funds that are paying certain fees to the fund of funds in which they are shareholders. The Court lacks subject matter jurisdiction, according to the previous holding in the Curran case.
  • Court Denies Motion to Dismiss
    On September 10, 2014, the District Court denied Principal's Motion to Dismiss, finding that the plaintiff has alleged sufficient facts to state a claim and permitting the case to move forward.
  • Court Order to Transfer Case to Iowa District Court
    On January 24, 2014, the Court issued an order transferring this case to the Southern District of Iowa, where the Defendant is located.
  • Reply Brief Filed by Principal
    On November 12, 2013, Principal filed a Reply brief, arguing that the plaintiff does not have standing to challenge fees charged to underling mutual funds in a "fund of funds" structure.
  • American Chemicals Response to Motion to Dismiss
    On November 7, 2013, the American Chemicals 401(k) Plan filed its response to the Motion to Dismiss. In its brief, American Chemicals argues that it does have standing to bring this case, as a shareholder of the Principal Funds seeking to recover money paid to the Principal Funds. The plaintiff also argues that it has properly pleaded its claims of excessive fees being charged.
  • Principal Files Motion to Dismiss
    On October 28, 2013, Principal filed a Motion to Dismiss this case. In its brief, Principal argues that the plaintiff lacks standing to bring this case because it is challenging fees of the underlying mutual funds in a "fund of funds" structure. Principal states that the plaintiff is not a security holder in the underlying funds whose fees it alleges are excessive. Principal also denies that its fees are excessive and do not reflect economies of scale.
  • American Chemicals & Equipment 401(k) Plan Files Excessive Fee Complaint Against Principal
    On August 28, 2013, a retirement plan of an Alabama corporation, American Chemicals & Equipment, Inc. filed an excessive fee complaint against Principal Management Corporation. The complaint alleges that Principal is collecting excessive management fees for the mutual funds in the retirement plan and then delegating the actual investment management work to sub-advisers who are being paid only 1/3 of the total fees collected.

On August 28, 2013, a retirement plan of an Alabama corporation, American Chemicals & Equipment, Inc., filed a complaint in U.S. District Court for the Northern District of Alabama. The complaint alleges that Principal collected excessive management fees from the mutual funds in this retirement plan, in violation of Section 36(b) of the Investment Company Act.

 

According to the complaint, Principal is collecting large management fees for supervising the work of sub-advisers who carry out the day-to-day investment management work of the mutual funds involved. In 2012, Principal retained $80 million out of $120 million collected in fees, while paying only $40 million to the sub-advisers providing the bulk of the investment management services. The plaintiff alleges that Principal is mainly acting as a "fee conduit" for its mutual funds.

 

The plaintiff believes that the amount of advisory fees that Principal is receiving is so disproportionately large that it bears no reasonable relationship to the services rendered in exchange for that fee and could not have been the product of arm's length bargaining, as required by the standards articulated in Jones v. Harris.

 

After Principal filed a Motion to Dismiss and the plaintiff responded, the Court issued an order on January 24, 2014, transferring this case to the Southern District of Iowa, where the Principal Funds are based.

 

On September 10, 2014, the District Court for the Southern District of Iowa denied Principal's Motion to Dismiss.  The Court found that the plaintiff has alleged sufficient facts to state a claim and will now permit the case to move forward.  On February 3, 2016, the Court dismissed the case for lack of standing.  The plaintiffs are not shareholders in the underlying funds paying certain fees to the "fund of funds," in which they are shareholders.

 

The plaintiffs have appealed the dismissal to the 8th Circuit Court of Appeals.  For some reason, the briefs before the 8th Circuit are sealed and not available to the public.  The parties argued their case before an 8th Circuit panel of judges on January 11, 2017, and the Court rendered its decision on July 24, 2017.  The Court affirmed the dismissal of the case by the District Court for lack of standing.

Document Title: 
8th Circuit Court of Appeals Affirms District Court Dismissal of Case
Document Desc: 
On July 24, 2017, the 8th Circuit Court of Appeals affirmed the dismissal of the case by the District Court for lack of standing. Earlier, the District Court ruled that the American Chemicals retirement plan was not a "security holder" in the Principal target date fund at issue because of its fund of funds structure.
Document Title: 
Court Dismisses Case on Standing Issue
Document Desc: 
On February 3, 2016, the Court dismissed the case on a standing issue. The plaintiffs are not shareholders in the underlying funds that are paying certain fees to the fund of funds in which they are shareholders. The Court lacks subject matter jurisdiction, according to the previous holding in the Curran case.
Document Title: 
Court Denies Motion to Dismiss
Document Desc: 
On September 10, 2014, the District Court denied Principal's Motion to Dismiss, finding that the plaintiff has alleged sufficient facts to state a claim and permitting the case to move forward.
Document Title: 
Court Order to Transfer Case to Iowa District Court
Document Desc: 
On January 24, 2014, the Court issued an order transferring this case to the Southern District of Iowa, where the Defendant is located.
Document Title: 
Reply Brief Filed by Principal
Document Desc: 
On November 12, 2013, Principal filed a Reply brief, arguing that the plaintiff does not have standing to challenge fees charged to underling mutual funds in a "fund of funds" structure.
Document Title: 
American Chemicals Response to Motion to Dismiss
Document Desc: 
On November 7, 2013, the American Chemicals 401(k) Plan filed its response to the Motion to Dismiss. In its brief, American Chemicals argues that it does have standing to bring this case, as a shareholder of the Principal Funds seeking to recover money paid to the Principal Funds. The plaintiff also argues that it has properly pleaded its claims of excessive fees being charged.
Document Title: 
Principal Files Motion to Dismiss
Document Desc: 
On October 28, 2013, Principal filed a Motion to Dismiss this case. In its brief, Principal argues that the plaintiff lacks standing to bring this case because it is challenging fees of the underlying mutual funds in a "fund of funds" structure. Principal states that the plaintiff is not a security holder in the underlying funds whose fees it alleges are excessive. Principal also denies that its fees are excessive and do not reflect economies of scale.
Document Title: 
American Chemicals & Equipment 401(k) Plan Files Excessive Fee Complaint Against Principal
Document Desc: 
On August 28, 2013, a retirement plan of an Alabama corporation, American Chemicals & Equipment, Inc. filed an excessive fee complaint against Principal Management Corporation. The complaint alleges that Principal is collecting excessive management fees for the mutual funds in the retirement plan and then delegating the actual investment management work to sub-advisers who are being paid only 1/3 of the total fees collected.