This lawsuit was initiated by shareholders in the Oakmark Funds, alleging that the investment adviser was charging advisory fees that were "disproportionate to the services rendered" and "not within the range of what would have been negotiated at arm's length in light of all the surrounding circumstances."
The case was dismissed by the District Court and upheld by the U.S. Court of Appeals for the Seventh Circuit. In a dissenting opinion, Judge Richard Posner urged a re-examination of the issues in this case and expressed concern that Harris Associates charges its retail funds more than twice what it charges institutional investors. The Seventh Circuit decision was then appealed to the U.S. Supreme Court.
In a unanimous decision, the Supreme Court upheld the Gartenberg standards that have been used in these cases for years and described the fiduciary duty owed to investors by an investment adviser as a test of "whether or not under all the circumstances the transaction carries the earmarks of an arm's length bargain."
This case was remanded back to the Seventh Circuit. On August 6, 2015, the Court affirmed the 2007 decision by the District Court in favor of Harris Associates. The Court stated that the Supreme Court's approach to 36(b) cases does not allow a court to assess the fairness or reasonableness of advisers' fees. Instead, the goal is to identify the "outer bounds of arm's length bargaining and not engage in rate regulation." The record before the District Court indicated that the fees charged by Harris Associates were comparable to that produced by bargaining at other mutual fund complexes, which the Court argued was the "bargaining range."