The Plaintiff enrolled in a variable annuity program provided by AXA Equitable Life Insurance Co. The Plaintiff was permitted to direct her contributions to a number of investment portfolios, which included several AXA Funds. On July 21, 2011, the Plaintiff filed a Complaint against AXA and its affiliate investment management company, alleging that AXA charged excessive investment management fees to the AXA Funds, in violation of Section 36(b) of the Investment Company Act of 1940.
The Complaint asserted that AXA charged investment management fees to its Funds and then remitted a small portion of the fees to a group of sub-advisors that were providing the actual investment management services. AXA retained the majority of the fees itself to compensate primarily for supervisory services relating to the sub-advisors.
After the Defendants filed a Motion to Dismiss the Complaint for lack of statutory standing, the Plaintiff filed an Amended Complaint, re-asserting her claim on excessive fees and raising two new claims: (1) a claim under Sections 26(f) and 47(b) of the Investment Company Act, which alleges that because AXA charges excessive management fees, the fees charged under the Plaintiff's variable annuity contract are also unreasonable; and (2) a claim for unjust enrichment. The plaintiff also added a claim that AXA's administrative fees were excessive because it delegated almost all of the work to a sub-administrator, while retaining for itself approximately 90% of the administrative fees charged to the Funds.
In December 2011, the Defendants filed a Motion to Dismiss the Amended Complaint. The primary argument advanced by the Defendants was that the Plainfiff did not have statutory standing as a "security holder" of the AXA Funds under the Investment Company Act, as a result of the fact that she only owned units in a separate account invested in mutual funds.
On September 25, 2012, the District Court denied the Defendants' Motion to Dismiss on the claim of excessive fees. The Court ruled that the Plaintiff was a "security holder" of the AXA Funds and, thus, has statutory standing to bring this case. The Court did grant a Motion to Dismiss on the Plaintiff's unjust enrichment claim and so the case will now proceed to trial on the alleged violation of Section 36(b) of the Investment Company Act.
This case has been consolidated with Sanford v. AXA Equitable Funds Management. The Plaintiffs have made a demand for a jury trial in both cases and, on July 3, 2013, the Magistrate Judge assigned to this litigation filed a Report and Recommendation in opposition to a right to trial by jury. 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 to the U.S. Constitution. On August 15, 2013, the Court accepted the Magistrate's Report and Recommendation on this issue of a jury trial.
AXA filed a motion for summary judgment in January 2015; and the plaintiffs' opposition brief has been placed under seal because of the proprietary information included in it. The Court denied AXA's motion for summary judgment on August 6, 2015. The trial in this case was scheduled to begin in January 2016.
After trial, the District Court ruled in August 2016 that the plaintiffs failed to meet their burden that AXA breached its fiduciary duty in violation of section 36(b) of the Investment Company Act. This decision has been appealed by the plaintiffs to the 3rd Circuit Court of Appeals.
The plaintiffs filed their appellant brief on August 28, 2017. The plaintiffs are requesting a reversal of the District Court's decision on behalf of four of the index funds managed by AXA. In their brief, they argued that: (1) the fund board did not fulfill its "watchdog" role on behalf of its investors; (2) there was sufficient evidence on the record for the District Court to determine AXA's advisory and administrative compensation; (3) the compensation received by AXA did not have the earmarks of an arm's length bargain; and (4) the District Court erred in its analysis of damages.
AXA filed its brief on September 29, 2017, and the plaintiffs filed their reply brief on October 27, 2017. This appeal has been scheduled for oral argument before the 3rd Circuit on January 17, 2018.
