• April 8, 2009

The U.S. Court of Appeals for the 8th Circuit dealt a blow to Ameriprise Financial. Judges Wollman, Beam, and Riley reversed summary judgment that the U.S. District Court (D. Minn.) had entered in Ameriprise’s favor on claims brought by a handful of mutual funds.

Under Section 36(b) of the Investment Company Act of 1940 (“ICA”), investment advisors owe mutual funds a fiduciary duty (“the highest obligation of good faith, fidelity, loyalty, fair dealing, and full disclosure,” as a recent Minnesota Court of Appeals decision described the nature of a fiduciary duty). What if Ameriprise charged fees for services provided to the mutual funds comparable with what other investment advisors charged mutual funds but out of whack with what Ameriprise charges institutional investors with nearly identical investment holdings? That is plaintiffs’ claim. (In addition, plaintiffs claim that Ameriprise presented a false or misleading report to justify their fees — which plaintiffs argue is a separate and distinct breach of Ameriprise’s duty of loyalty.)

There is a circuit split on the issue of the scope of investment advisors’ fiduciary duties owed to mutual funds under the ICA. The Eighth Circuit sided with the hard-liners and suggested the U.S. Supreme Court might do the same in their review of Jones v. Harris, 527 F.3d 627 (7th Cir. 2008). The U.S. Supreme Court granted cert on March 9, 2009.

Adding to Ameriprise’s misfortune, the 8th Circuit also rejected Ameriprise’s attempt to limit plaintiffs’ damages to damages incurred before the lawsuit was filed (6/9/04), a position that the District Court had adopted.

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