SIVOLELLA V. AXA EQUITABLE LIFE INSURANCE CO.



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.

  • Plaintiffs' Brief Filed With 3rd Circuit Court of Appeals
    The plaintiffs filed their appellant brief on August 28, 2017. They argued that: (1) the fund board did not fulfill its "watchdog" role on behalf of its investors; (2) there was sufficient evidence in 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.
  • District Court Rules for AXA
    On August 25, 2016, the District Court issued its decision in this case. In a 159-page opinion, the Court found that the plaintiffs failed to meet their burden that the AXA defendants breached their fiduciary duty in violation of section 36(b) of the Investment Company Act. The Court also ruled that the plaintiffs were not able to show any actual damages.
  • Court Denies AXA Motion for Summary Judgment
    On August 6, 2015, the Court denied AXA's motion for summary judgment and scheduled the trial to begin in January 2016.
  • AXA Files Motion for Summary Judgment
    On January 23, 2015, AXA filed a motion for summary judgment, alleging that there are no genuine issues of material fact for trial. The AXA brief also argues that the independent trustees for the mutual funds involved were aware of the differences in services provided by the adviser and the sub-advisers and approved the fees in question.
  • Court Adopts Magistrate Report and Recommendation on Jury Trial Demand
    On August 15, 2013, the Court adopted the Report and Recommendation of the Magistrate Judge, concluding that the Plaintiffs are seeking equitable restitution and, thus, are not entitled to a jury trial.
  • Magistrate Judge Files Report and Recommendation on Jury Trial Demand
    The Plaintiffs have made a demand for a jury trial in this case and in the related Sanford case. On July 3, 2013, the Magistrate Judge assigned to both cases issued a Report and Recommendation on this demand. The Judge concluded that Section 36(b) claims for breach of fiduciary duty are claims for equitable restitution and, as such, are not entitled to a jury trial under the Seventh Amendment to the U.S. Constitution.
  • Plaintiff Files Second Amended Complaint
    On April 15, 2013, the plaintiff in this case filed a Second Amended Complaint. This Complaint seeks to recover excessive management fees collected by the defendant for providing oversight and supervision of various sub-advisers to AXA mutual funds. The plaintiff alleges that the defendant violated several sections of the Investment Company Act, including Section 36(b) and Section 26(f)(2), involving fees charged for variable insurance contracts. The plaintiff added a claim challenging AXA's administrative fees as being excessive too, as it delegated most of the work to a sub-administrator and retained approximately 90% of the fees. The plaintiff also has demanded a trial by jury on all of its claims.
  • Court Denies Defendants' Motion to Dismiss the Amended Complaint
    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 theory and so the case will now proceed to trial on the alleged violation of Section 36(b) of the Investment Company Act.
  • Defendants File Reply Memorandum
    On March 5, 2012, the Defendants filed a Reply Memorandum in support of their Motion to Dismiss. The primary argument advanced by the Defendants is that the Investment Company Act only provides standing for a "security holder" of the Funds. Since the Plaintiff only holds units of a separate account invested in mutual funds, she is not a security holder.
  • Plaintiff Files Brief Opposing Motion to Dismiss
    On February 2, 2012, the Plaintiff filed a brief in opposition to the Motion to Dismiss the Amended Complaint. The Plaintiff asserts she has statutory standing to bring a claim under Section 36(b) of the Investment Company Act because she bears all the risk of the investment performance and the fees paid to the Funds are drawn from her account. Thus, she is a "security holder" because she possesses all of the indicia of ownership of the underlying AXA Funds.
  • Defendants' Motion to Dismiss Amended Complaint
    On December 19, 2011, the Defendants filed a Motion to Dismiss the Amended Complaint. The Defendants assert that the Plaintiff, who is a holder of units in a separate account invested in mutual funds as a part of a variable annuity contract, is not a "security holder" of the AXA Funds, as that term is defined in the Investment Company Act. Only a security holder may bring an action under Section 36(b) of the Act.
  • Plaintiff Files Amended Complaint
    On November 4, 2011, the Plaintiff filed an Amended Complaint in this action. In the Amended Complaint, the Plaintiff re-asserts her claim on excessive fees and adds two new claims: (a) 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.
  • Defendants File Motion to Dismiss the Complaint
    On October 17, 2011, the Defendants filed a Motion to Dismiss the Complaint, arguing that the Plaintiff lacks standing to bring an action under the Investment Company Act because she is not a "security holder" of the AXA Funds. Instead, the Plaintiff holds units in a separate account invested in the AXA Funds as part of a variable annuity contract. According to the Defendants, a variable annuity is like a "fund of funds" and shareholders of these funds are not security holders under Section 36(b) of the Act.
  • Plaintiff Files Complaint Against AXA For Excessive Fees
    On July 21, 2011, a shareholder of the AXA Funds filed a Complaint against AXA Equitable Life Insurance Company and its affiliated investment management company, alleging that AXA charged excessive investment management fees to shareholders. The Complaint asserts that AXA collects an investment management fee for each Fund and then remits a small portion of such fee to various sub-advisers providing investment management services. AXA retains the majority of the management fee, even though it is merely supervising the sub-advisers providing the actual investment management services. The Plaintiff alleges a violation of Section 36(b) of the Investment Company Act.

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.

Document Title: 
Plaintiffs' Brief Filed With 3rd Circuit Court of Appeals
Document Desc: 
The plaintiffs filed their appellant brief on August 28, 2017. They argued that: (1) the fund board did not fulfill its "watchdog" role on behalf of its investors; (2) there was sufficient evidence in 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.
Document Title: 
District Court Rules for AXA
Document Desc: 
On August 25, 2016, the District Court issued its decision in this case. In a 159-page opinion, the Court found that the plaintiffs failed to meet their burden that the AXA defendants breached their fiduciary duty in violation of section 36(b) of the Investment Company Act. The Court also ruled that the plaintiffs were not able to show any actual damages.
Document Title: 
Court Denies AXA Motion for Summary Judgment
Document Desc: 
On August 6, 2015, the Court denied AXA's motion for summary judgment and scheduled the trial to begin in January 2016.
Document Title: 
AXA Files Motion for Summary Judgment
Document Desc: 
On January 23, 2015, AXA filed a motion for summary judgment, alleging that there are no genuine issues of material fact for trial. The AXA brief also argues that the independent trustees for the mutual funds involved were aware of the differences in services provided by the adviser and the sub-advisers and approved the fees in question.
Document Title: 
Court Adopts Magistrate Report and Recommendation on Jury Trial Demand
Document Desc: 
On August 15, 2013, the Court adopted the Report and Recommendation of the Magistrate Judge, concluding that the Plaintiffs are seeking equitable restitution and, thus, are not entitled to a jury trial.
Document Title: 
Magistrate Judge Files Report and Recommendation on Jury Trial Demand
Document Desc: 
The Plaintiffs have made a demand for a jury trial in this case and in the related Sanford case. On July 3, 2013, the Magistrate Judge assigned to both cases issued a Report and Recommendation on this demand. The Judge concluded that Section 36(b) claims for breach of fiduciary duty are claims for equitable restitution and, as such, are not entitled to a jury trial under the Seventh Amendment to the U.S. Constitution.
Document Title: 
Plaintiff Files Second Amended Complaint
Document Desc: 
On April 15, 2013, the plaintiff in this case filed a Second Amended Complaint. This Complaint seeks to recover excessive management fees collected by the defendant for providing oversight and supervision of various sub-advisers to AXA mutual funds. The plaintiff alleges that the defendant violated several sections of the Investment Company Act, including Section 36(b) and Section 26(f)(2), involving fees charged for variable insurance contracts. The plaintiff added a claim challenging AXA's administrative fees as being excessive too, as it delegated most of the work to a sub-administrator and retained approximately 90% of the fees. The plaintiff also has demanded a trial by jury on all of its claims.
Document Title: 
Court Denies Defendants' Motion to Dismiss the Amended Complaint
Document Desc: 
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 theory and so the case will now proceed to trial on the alleged violation of Section 36(b) of the Investment Company Act.
Document Title: 
Defendants File Reply Memorandum
Document Desc: 
On March 5, 2012, the Defendants filed a Reply Memorandum in support of their Motion to Dismiss. The primary argument advanced by the Defendants is that the Investment Company Act only provides standing for a "security holder" of the Funds. Since the Plaintiff only holds units of a separate account invested in mutual funds, she is not a security holder.
Document Title: 
Plaintiff Files Brief Opposing Motion to Dismiss
Document Desc: 
On February 2, 2012, the Plaintiff filed a brief in opposition to the Motion to Dismiss the Amended Complaint. The Plaintiff asserts she has statutory standing to bring a claim under Section 36(b) of the Investment Company Act because she bears all the risk of the investment performance and the fees paid to the Funds are drawn from her account. Thus, she is a "security holder" because she possesses all of the indicia of ownership of the underlying AXA Funds.
Document Title: 
Defendants' Motion to Dismiss Amended Complaint
Document Desc: 
On December 19, 2011, the Defendants filed a Motion to Dismiss the Amended Complaint. The Defendants assert that the Plaintiff, who is a holder of units in a separate account invested in mutual funds as a part of a variable annuity contract, is not a "security holder" of the AXA Funds, as that term is defined in the Investment Company Act. Only a security holder may bring an action under Section 36(b) of the Act.
Document Title: 
Plaintiff Files Amended Complaint
Document Desc: 
On November 4, 2011, the Plaintiff filed an Amended Complaint in this action. In the Amended Complaint, the Plaintiff re-asserts her claim on excessive fees and adds two new claims: (a) 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.
Document Title: 
Defendants File Motion to Dismiss the Complaint
Document Desc: 
On October 17, 2011, the Defendants filed a Motion to Dismiss the Complaint, arguing that the Plaintiff lacks standing to bring an action under the Investment Company Act because she is not a "security holder" of the AXA Funds. Instead, the Plaintiff holds units in a separate account invested in the AXA Funds as part of a variable annuity contract. According to the Defendants, a variable annuity is like a "fund of funds" and shareholders of these funds are not security holders under Section 36(b) of the Act.
Document Title: 
Plaintiff Files Complaint Against AXA For Excessive Fees
Document Desc: 
On July 21, 2011, a shareholder of the AXA Funds filed a Complaint against AXA Equitable Life Insurance Company and its affiliated investment management company, alleging that AXA charged excessive investment management fees to shareholders. The Complaint asserts that AXA collects an investment management fee for each Fund and then remits a small portion of such fee to various sub-advisers providing investment management services. AXA retains the majority of the management fee, even though it is merely supervising the sub-advisers providing the actual investment management services. The Plaintiff alleges a violation of Section 36(b) of the Investment Company Act.