GALLUS V. AMERIPRISE FINANCIAL (RIVERSOURCE FUNDS)



This lawsuit was initiated in U.S. District Court for the District of Minnestoa by shareholders of 11 mutual funds managed by Ameriprise Financial (formerly American Express Financial Corporation). The lawsuit alleges that Ameriprise Financial breached its duty under the Investment Company Act by "misleading the Board during the [advisory fee] negotiation and demanding excessive fees." According to the plaintiffs, Ameriprise Financial provides comparable advisory services to its institutional clients at substantially lower fees than what it charges its retail mutual funds.

 

On July 10, 2007, the District Court granted summary judgment for the defendants and the case was dismissed. The Court applied the Gartenberg factors and determined that the plaintiffs did not show that the advisory fees were "so disproportionately large that [they] bear no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining." After this decision was issued, the plaintiffs appealed to the U.S. Court of Appeals for the Eighth Circuit.

 

The Eighth Circuit Court reversed this decision. The Court held that the District Court properly applied the Gartenberg factors, but erred in rejecting a comparison between the advisory fees charged to Ameriprise's institutional clients and its mutual fund clients. The Court stated that "the argument for comparing mutual fund advisory fees with the fees charged to institutional accounts is particularly strong in this case because the investment advice may have been essentially the same for both accounts."

 

In its opinion, the Eighth Circuit also noted a similar advisory fee case in the Seventh Circuit, Jones v. Harris Associates, a case which was successfully appealed to the U.S. Supreme Court.

 

The defendants appealed the Eighth Circuit decision in this case to the Supreme Court separately. After rendering its decision in the Jones case, the Court vacated the opinion in Gallus by the Eighth Circuit and remanded the case back to the Court of Appeals. The Eighth Circuit, in turn, remanded the case back to the District Court.

 

On December 10, 2010, the District Court reinstated its earlier summary judgment order and dismissed the case. The Court concluded that the Supreme Court adopted the Gartenberg framework in its Jones decision, and the Eighth Circuit specifically noted that the District Court properly applied the Gartenberg factors in its earlier decision.

 

The case then returned to the Eighth Circuit Court of Appeals. The plaintiffs argued that the District Court should have examined the discrepancy between the advisory fees charged to the retail mutual funds and the advisory fees charged to the investment adviser's institutional clients, instead of merely reinstating its 2007 summary judgment order. The defendants argued that the earlier summary judgment was properly reinstated by the District Court, as the fees charged by the investment adviser "passed muster" under the Gartenberg standards.  

 

Briefs were filed in this case and oral argument was heard on November 17, 2011. On March 30, 2012, the 8th Circuit ruled in favor of Ameriprise Financial, finding that the advisory fee review process used by the fund board met the legal standards in the Gartenberg and Jones appellate decisions.

  • 8th Circuit Decision Upholding Board's Use of Gartenberg Criteria
    On March 30, 2012, the 8th Circuit Court of Appeals ruled in favor of Ameriprise Financial, finding that the advisory fee review process used by the fund board met the legal standards in the Gartenberg and Jones appellate decisions. The Court also concluded that the District Court's review of the disputed fees was a "rigorous look at the outcome."
  • Plaintiffs File Reply Brief with Eighth Circuit Court of Appeals
    On May 27, 2011, the plaintiffs filed a reply brief with the U.S. Court of Appeals for the Eighth Circuit. The brief argues that the District Court should have taken a more rigorous look at Ameriprise's advisory fees, especially the large disparity between what Ameriprise charges its retail funds for investment advice, compared to what it charges its institutional clients for essentially the same investment advice. The brief also argues for a reversal of the District Court's order on the basis of a flawed fee approval process followed by the investment adviser and the fund board.
  • Defendants File Appellate Brief with Eighth Circuit Court of Appeals
    On May 5, 2011, the defendants filed their appellate brief with the U.S. Court of Appeals for the Eighth Circuit. In their brief, the defendants argued that the earlier summary judgment order was properly reinstated by the District Court, as the advisory fees charged by the investment adviser "passed muster" under the Gartenberg standards.
  • Plaintiffs File Appellate Brief with Eighth Circuit Court of Appeals
    On March 21, 2011, the plaintiffs filed their appellate brief with the U.S. Court of Appeals for the Eighth Circuit. In their brief, the plaintiffs argued that the District Court should have examined the discrepancey between the fees charged to the retail mutual funds and the fees charged to the investment adviser's institutional clients, instead of merely reinstating its earlier summary judgment order.
  • District Court Dismisses Case
    On December 10, 2010, the District Court dismissed this case, by reinstating its Order of July 10, 2007, granting summary judgement in favor of the defendants. The Court concluded that the U.S. Supreme Court holding in the Jones case adopted the Gartenberg framework and the Eighth Circuit agreed that the District Court properly applied the Gartenberg factors in its earlier decision. The plaintiffs have appealed this decision back to the Eighth Circuit.
  • Defendants File Reply Memorandum on Jones Impact
    On September 15, 2010, the defendants filed their Reply Memorandum with the District Court.
  • Plaintiffs File Reply Brief on Jones Impact
    On September 15, 2010, the plaintiffs filed their Reply Brief with the District Court.
  • Plaintiffs File Brief on Impact of Jones v. Harris Associates
    On September 1, 2010, the plaintiffs filed a brief regarding the impact of the U.S. Supreme Court decision in Jones v. Harris Associates on this case.
  • Defendants File Memorandum on Impact of Jones v. Harris Associates
    On September 1, 2010, the defendants filed a memorandum regarding the impact of the U.S. Supreme Court decision in Jones v. Harris Associates on this case.
  • Eighth Circuit Remands Case Back to District Court
    On June 4, 2010, the 8th Circuit remanded this case to the District Court for further consideration in light of the Jones case.
  • U.S. Supreme Court Vacates Eighth Circuit Holding
    On May 14, 2010, the U.S. Supreme Court vacated the 2008 holding by the 8th Circuit in this case as a result of its decision in the Jones case.
  • Eighth Circuit Court of Appeals Reverses District Court Holding
    On April 8, 2008, the Eighth Circuit Court of Appeals reversed the District Court decision. The Court of Appeals based its decision, in part, on the discrepancy in fees being charged by the adviser to its mutual fund and institutional clients.
  • District Court Grants Motion for Summary Judgment
    On July 6, 2007, the District Court granted the defendants' Motion for Summary Judgment and dismissed the case.
  • Plaintiffs File Memorandum Opposing Motion for Summary Judgment
    On April 9, 2007, the plaintiffs filed a Memorandum in Opposition to the Motion for Summary Judgment.
  • Defendants File Motion for Summary Judgment
    On March 13, 2007, the defendants filed their Motion for Summary Judgment.
  • District Court Decision on Motion to Dismiss
    On March 7, 2005, the Court issued its decision on the defendants’ Motion to Dismiss.
  • Plaintiffs File Memorandum Opposing Motion to Dismiss
    On January 18, 2005, the plaintiffs filed a Memorandum in Opposition to the Motion to Dismiss.
  • Defendants File Motion to Dismiss
    On December 21, 2004, the defendants filed their Motion to Dismiss the lawsuit.
  • The March 30 decision by the 8th Circuit Court of Appeals in the Gallus advisory fee case was a relief for many in the mutual fund industry. The Court ruled in favor of Ameriprise Financial and...

This lawsuit was initiated in U.S. District Court for the District of Minnestoa by shareholders of 11 mutual funds managed by Ameriprise Financial (formerly American Express Financial Corporation). The lawsuit alleges that Ameriprise Financial breached its duty under the Investment Company Act by "misleading the Board during the [advisory fee] negotiation and demanding excessive fees." According to the plaintiffs, Ameriprise Financial provides comparable advisory services to its institutional clients at substantially lower fees than what it charges its retail mutual funds.

 

On July 10, 2007, the District Court granted summary judgment for the defendants and the case was dismissed. The Court applied the Gartenberg factors and determined that the plaintiffs did not show that the advisory fees were "so disproportionately large that [they] bear no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining." After this decision was issued, the plaintiffs appealed to the U.S. Court of Appeals for the Eighth Circuit.

 

The Eighth Circuit Court reversed this decision. The Court held that the District Court properly applied the Gartenberg factors, but erred in rejecting a comparison between the advisory fees charged to Ameriprise's institutional clients and its mutual fund clients. The Court stated that "the argument for comparing mutual fund advisory fees with the fees charged to institutional accounts is particularly strong in this case because the investment advice may have been essentially the same for both accounts."

 

In its opinion, the Eighth Circuit also noted a similar advisory fee case in the Seventh Circuit, Jones v. Harris Associates, a case which was successfully appealed to the U.S. Supreme Court.

 

The defendants appealed the Eighth Circuit decision in this case to the Supreme Court separately. After rendering its decision in the Jones case, the Court vacated the opinion in Gallus by the Eighth Circuit and remanded the case back to the Court of Appeals. The Eighth Circuit, in turn, remanded the case back to the District Court.

 

On December 10, 2010, the District Court reinstated its earlier summary judgment order and dismissed the case. The Court concluded that the Supreme Court adopted the Gartenberg framework in its Jones decision, and the Eighth Circuit specifically noted that the District Court properly applied the Gartenberg factors in its earlier decision.

 

The case then returned to the Eighth Circuit Court of Appeals. The plaintiffs argued that the District Court should have examined the discrepancy between the advisory fees charged to the retail mutual funds and the advisory fees charged to the investment adviser's institutional clients, instead of merely reinstating its 2007 summary judgment order. The defendants argued that the earlier summary judgment was properly reinstated by the District Court, as the fees charged by the investment adviser "passed muster" under the Gartenberg standards.  

 

Briefs were filed in this case and oral argument was heard on November 17, 2011. On March 30, 2012, the 8th Circuit ruled in favor of Ameriprise Financial, finding that the advisory fee review process used by the fund board met the legal standards in the Gartenberg and Jones appellate decisions.

Document Title: 
8th Circuit Decision Upholding Board's Use of Gartenberg Criteria
Document Desc: 
On March 30, 2012, the 8th Circuit Court of Appeals ruled in favor of Ameriprise Financial, finding that the advisory fee review process used by the fund board met the legal standards in the Gartenberg and Jones appellate decisions. The Court also concluded that the District Court's review of the disputed fees was a "rigorous look at the outcome."
Document Title: 
Plaintiffs File Reply Brief with Eighth Circuit Court of Appeals
Document Desc: 
On May 27, 2011, the plaintiffs filed a reply brief with the U.S. Court of Appeals for the Eighth Circuit. The brief argues that the District Court should have taken a more rigorous look at Ameriprise's advisory fees, especially the large disparity between what Ameriprise charges its retail funds for investment advice, compared to what it charges its institutional clients for essentially the same investment advice. The brief also argues for a reversal of the District Court's order on the basis of a flawed fee approval process followed by the investment adviser and the fund board.
Document Title: 
Defendants File Appellate Brief with Eighth Circuit Court of Appeals
Document Desc: 
On May 5, 2011, the defendants filed their appellate brief with the U.S. Court of Appeals for the Eighth Circuit. In their brief, the defendants argued that the earlier summary judgment order was properly reinstated by the District Court, as the advisory fees charged by the investment adviser "passed muster" under the Gartenberg standards.
Document Title: 
Plaintiffs File Appellate Brief with Eighth Circuit Court of Appeals
Document Desc: 
On March 21, 2011, the plaintiffs filed their appellate brief with the U.S. Court of Appeals for the Eighth Circuit. In their brief, the plaintiffs argued that the District Court should have examined the discrepancey between the fees charged to the retail mutual funds and the fees charged to the investment adviser's institutional clients, instead of merely reinstating its earlier summary judgment order.
Document Title: 
District Court Dismisses Case
Document Desc: 
On December 10, 2010, the District Court dismissed this case, by reinstating its Order of July 10, 2007, granting summary judgement in favor of the defendants. The Court concluded that the U.S. Supreme Court holding in the Jones case adopted the Gartenberg framework and the Eighth Circuit agreed that the District Court properly applied the Gartenberg factors in its earlier decision. The plaintiffs have appealed this decision back to the Eighth Circuit.
Document Title: 
Defendants File Reply Memorandum on Jones Impact
Document Desc: 
On September 15, 2010, the defendants filed their Reply Memorandum with the District Court.
Document Title: 
Plaintiffs File Reply Brief on Jones Impact
Document Desc: 
On September 15, 2010, the plaintiffs filed their Reply Brief with the District Court.
Document Title: 
Plaintiffs File Brief on Impact of Jones v. Harris Associates
Document Desc: 
On September 1, 2010, the plaintiffs filed a brief regarding the impact of the U.S. Supreme Court decision in Jones v. Harris Associates on this case.
Document Title: 
Defendants File Memorandum on Impact of Jones v. Harris Associates
Document Desc: 
On September 1, 2010, the defendants filed a memorandum regarding the impact of the U.S. Supreme Court decision in Jones v. Harris Associates on this case.
Document Title: 
Eighth Circuit Remands Case Back to District Court
Document Desc: 
On June 4, 2010, the 8th Circuit remanded this case to the District Court for further consideration in light of the Jones case.
Document Title: 
U.S. Supreme Court Vacates Eighth Circuit Holding
Document Desc: 
On May 14, 2010, the U.S. Supreme Court vacated the 2008 holding by the 8th Circuit in this case as a result of its decision in the Jones case.
Document Title: 
Eighth Circuit Court of Appeals Reverses District Court Holding
Document Desc: 
On April 8, 2008, the Eighth Circuit Court of Appeals reversed the District Court decision. The Court of Appeals based its decision, in part, on the discrepancy in fees being charged by the adviser to its mutual fund and institutional clients.
Document Title: 
District Court Grants Motion for Summary Judgment
Document Desc: 
On July 6, 2007, the District Court granted the defendants' Motion for Summary Judgment and dismissed the case.
Document Title: 
Plaintiffs File Memorandum Opposing Motion for Summary Judgment
Document Desc: 
On April 9, 2007, the plaintiffs filed a Memorandum in Opposition to the Motion for Summary Judgment.
Document Title: 
Defendants File Motion for Summary Judgment
Document Desc: 
On March 13, 2007, the defendants filed their Motion for Summary Judgment.
Document Title: 
District Court Decision on Motion to Dismiss
Document Desc: 
On March 7, 2005, the Court issued its decision on the defendants’ Motion to Dismiss.
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Document Title: 
Plaintiffs File Memorandum Opposing Motion to Dismiss
Document Desc: 
On January 18, 2005, the plaintiffs filed a Memorandum in Opposition to the Motion to Dismiss.
Document Title: 
Defendants File Motion to Dismiss
Document Desc: 
On December 21, 2004, the defendants filed their Motion to Dismiss the lawsuit.