On January 15, 2013, several shareholders in the AXA Funds sued the investment adviser, AXA Equitable Funds Management Group, for breaching its fiduciary duty under Section 36(b) of the Investment Company Act.
The Complaint alleges that the investment adviser has contracted with sub-advisers to perform, with minor exceptions, all of the investment management services that are needed by each AXA Fund. The plaintiffs assert that the investment adviser is retaining the bulk of the advisory fees charged to shareholders and remitting a much smaller amount to each of the sub-advisers. According to the plaintiffs, the advisory services provided by AXA are primarily for oversight and supervision of the sub-advisers, and, as such, should only be a fraction of the sub-advisory fees and not substantially in excess of such fees. The plaintiffs believe that the advisory fees being collected by the investment adviser exceed the fees being paid to the sub-advisers by a total of 269% for 8 of the funds in the AXA family of funds.
AXA responded with a Motion to Strike Plaintiffs' Demands for a Jury Trial on February 22, 2013. In its brief, the defendant argues that claims under Section 36(b) of the Investment Company Act are equitable in nature and, therefore, afford no right to a jury trial under the Seventh Amendment to the U.S. Constitution.
On March 18, 2013, the plaintiffs filed a brief in opposition to the Motion to Strike. The plaintiffs argue that: (1) Section 36(b) of the Investment Company Act permits a plaintiff to recover damages and, therefore, confers a right to a trial by jury; and (2) the plaintiffs' claims under Section 36(b) seek restitution, which is a traditional remedy at law that plaintiffs have a right to try before a jury.
AXA filed a Reply brief on April 1, 2013, arguing that Section 36(b)'s reference to "actual damages" does not indicate Congressional intent to afford a right to trial by jury.
On April 15, 2013, the plaintiffs filed their First Amended Complaint and Jury Demand.
This case has been consolidated with Sivolella v. AXA Equitable Life Insurance Company. On July 3, 2013, the Magistrate Judge assigned to the case filed his Report and Recommendation to deny the request by the plaintiffs in both cases for a jury trial. The Magistrate Judge concluded that a Section 36(b) claim for breach of fiduciary duty is a claim for equitable restitution and, as such, is not entitled to a jury trial under the Seventh Amendment. The Court adopted this Report and Recommendation on the jury trial issue on August 15, 2013.