IN RE AMERICAN MUTUAL FUNDS FEE LITIGATION



Two plaintiff law firms initiated this lawsuit on behalf of the shareholders of the American Funds, alleging that the payment of advisory, Rule 12b-1, and administrative service fees by the Funds were improper, excessive, and not in the interest of shareholders. This lawsuit also contends that these fees charged to the Funds and their shareholders were not reasonably related to the services provided.

 

This lawsuit was initially filed in the United States District Court for the Central District of California. In December 2009, the District Court dismissed this case, applying the standards for evaluating mutual fund fees established in Gartenberg v. Merrill Lynch Asset Management, Inc. The plaintiffs appealed this District Court decision to the Ninth Circuit Court of Appeals. On August 24, 2011, the Ninth Circuit affirmed the District Court dismissal of this case.

  • Ninth Circuit Affirms District Court Dismissal of American Funds Case
    On August 24, 2011, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision by the District Court to dismiss this case. The Ninth Circuit concluded that the District Court correctly applied the Gartenberg standards, even after the recent Supreme Court decision in Jones v. Harris Associates. While the District Court was critical of the work of the independent directors of the American Funds in "papering the file," the Court concluded that their lack of conscientiousness was not sufficient to prove that Capital Research breached its fiduciary duty under Section 36(b) of the Investment Company Act.
  • Defendants File Appellate Brief with Ninth Circuit Court of Appeals
    On September 3, 2010, the defendants in this lawsuit filed their appellate brief with the Ninth Circuit Court of Appeals. In their brief, the defendants argue that the District Court did not err in applying the Gartenberg standards, which were recently upheld by the U.S. Supreme Court in the case of Jones v. Harris Associates.
  • Plaintiffs File Appellate Brief with Ninth Circuit Court of Appeals
    The plaintiffs have appealed the District Court dismissal of this lawsuit to the Ninth Circuit Court of Appeals. On July 21, 2010, the plaintiffs filed their appellate brief, contending that the District Court erred in its findings of fact and conclusions of law regarding the advisory, 12b-1, and administrative fees at issue in this lawsuit.
  • U.S. District Court Dismisses the Case
    On December 28, 2009, the Court dismissed this lawsuit, finding that the Gartenberg standards were complied with by the directors of the Funds. According to the Court, Gartenberg requires proof that “the adviser-manager [has charged] a fee that 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.” In its opinion, the Court noted that the independent directors did not diligently inquire into some issues of importance and failed to recognize the consequences of some of the information presented to them.
  • Defendants file Post-Trial Brief
    After a trial was held, the defendants filed on August 24, 2009, a post-trial brief contending that the advisory, Rule 12b-1, and administrative fees paid were not disproportionate when considering the totality of the circumstances. According to the brief, the standards in Gartenberg v. Merrill Lynch Asset Management, Inc. were applied correctly by the directors of the Funds, including an evaluation of the nature and quality of services, comparative fees, profitability, economies of scale, and the independence and conscientiousness of the directors of the Funds.
  • Plaintiffs File Post-Trial Brief
    After a trial was held, the plaintiffs filed a post-trial brief on August 24, 2009 contending that there is a lack of an arm’s length relationship between the adviser and the independent directors of the American Funds. According to the brief, the directors of the Funds annually approved fees that did not take into account the unprecedented growth in the assets of the Funds.
  • Plaintiffs File Fourth Amended Complaint
    On May 16, 2008, the plaintiffs filed their Fourth Amended Complaint with the Court. This Complaint alleged that the Rule 12b-1 and advisory fees paid to the American Funds’ investment adviser (Capital Research and Management) and distributor (American Funds Distributors) were excessive, disproportionate to the value of the services provided, and not within the bounds of what would have been negotiated at arm’s length.
  • On August 24, 2011, the Ninth Circuit Court of Appeals handed down an unpublished opinion in the American Funds fee case. The Court upheld the dismissal of the case by the District Court, holding...

Two plaintiff law firms initiated this lawsuit on behalf of the shareholders of the American Funds, alleging that the payment of advisory, Rule 12b-1, and administrative service fees by the Funds were improper, excessive, and not in the interest of shareholders. This lawsuit also contends that these fees charged to the Funds and their shareholders were not reasonably related to the services provided.

 

This lawsuit was initially filed in the United States District Court for the Central District of California. In December 2009, the District Court dismissed this case, applying the standards for evaluating mutual fund fees established in Gartenberg v. Merrill Lynch Asset Management, Inc. The plaintiffs appealed this District Court decision to the Ninth Circuit Court of Appeals. On August 24, 2011, the Ninth Circuit affirmed the District Court dismissal of this case.

Document Title: 
Ninth Circuit Affirms District Court Dismissal of American Funds Case
Document Desc: 
On August 24, 2011, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision by the District Court to dismiss this case. The Ninth Circuit concluded that the District Court correctly applied the Gartenberg standards, even after the recent Supreme Court decision in Jones v. Harris Associates. While the District Court was critical of the work of the independent directors of the American Funds in "papering the file," the Court concluded that their lack of conscientiousness was not sufficient to prove that Capital Research breached its fiduciary duty under Section 36(b) of the Investment Company Act.
Document Title: 
Defendants File Appellate Brief with Ninth Circuit Court of Appeals
Document Desc: 
On September 3, 2010, the defendants in this lawsuit filed their appellate brief with the Ninth Circuit Court of Appeals. In their brief, the defendants argue that the District Court did not err in applying the Gartenberg standards, which were recently upheld by the U.S. Supreme Court in the case of Jones v. Harris Associates.
Document Title: 
Plaintiffs File Appellate Brief with Ninth Circuit Court of Appeals
Document Desc: 
The plaintiffs have appealed the District Court dismissal of this lawsuit to the Ninth Circuit Court of Appeals. On July 21, 2010, the plaintiffs filed their appellate brief, contending that the District Court erred in its findings of fact and conclusions of law regarding the advisory, 12b-1, and administrative fees at issue in this lawsuit.
Document Title: 
U.S. District Court Dismisses the Case
Document Desc: 
On December 28, 2009, the Court dismissed this lawsuit, finding that the Gartenberg standards were complied with by the directors of the Funds. According to the Court, Gartenberg requires proof that “the adviser-manager [has charged] a fee that 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.” In its opinion, the Court noted that the independent directors did not diligently inquire into some issues of importance and failed to recognize the consequences of some of the information presented to them.
Document Title: 
Defendants file Post-Trial Brief
Document Desc: 
After a trial was held, the defendants filed on August 24, 2009, a post-trial brief contending that the advisory, Rule 12b-1, and administrative fees paid were not disproportionate when considering the totality of the circumstances. According to the brief, the standards in Gartenberg v. Merrill Lynch Asset Management, Inc. were applied correctly by the directors of the Funds, including an evaluation of the nature and quality of services, comparative fees, profitability, economies of scale, and the independence and conscientiousness of the directors of the Funds.
Document Title: 
Plaintiffs File Post-Trial Brief
Document Desc: 
After a trial was held, the plaintiffs filed a post-trial brief on August 24, 2009 contending that there is a lack of an arm’s length relationship between the adviser and the independent directors of the American Funds. According to the brief, the directors of the Funds annually approved fees that did not take into account the unprecedented growth in the assets of the Funds.
Document Title: 
Plaintiffs File Fourth Amended Complaint
Document Desc: 
On May 16, 2008, the plaintiffs filed their Fourth Amended Complaint with the Court. This Complaint alleged that the Rule 12b-1 and advisory fees paid to the American Funds’ investment adviser (Capital Research and Management) and distributor (American Funds Distributors) were excessive, disproportionate to the value of the services provided, and not within the bounds of what would have been negotiated at arm’s length.