The Seventh Circuit Court of Appeals issued a decision on August 6, 2015, in the case of Jones v. Harris Associates L.P. on remand from the United States Supreme Court.  The case was actually remanded to the Circuit Court in 2010 but the decision was delayed because, according to the Court, the papers were “placed in the wrong stack and forgotten.”

The Circuit Court affirmed the district court’s decision that Harris Associates L.P. (Harris), the investment adviser to the Oakmark Funds, was not liable to the plaintiffs for excessive fees under Section 36(b) of the Investment Company Act of 1940.  Using the Supreme Court’s test – to face liability under Section 36(b), an adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arms’ length bargaining – the Circuit Court stated that Harris’s fees were competitive with other comparable funds, the fees contained breakpoints, the Oakmark Funds’ returns were above the norm for comparable investment products, and Harris provided accurate information to Oakmark Funds’ boards, whose disinterested members approved the fees.  For these reasons, the Court held that Harris’s fees were not disproportionate to the services it performed. 

The Court rejected the plaintiffs’ request that it consider comparisons of Harris fees from the Oakmark Funds and the fees charged by Harris to pension funds and other private clients.  The fees charged to the Oakmark Funds were generally higher than those charged to the private funds.  The Court stated that plaintiffs had not provided any evidence as to the services provided by Harris to these private clients or the costs incurred by Harris in servicing them.   Accordingly, the Court stated that it had no basis for analysis of these comparisons.  The Court therefore left open the possibility that under the right circumstances, future plaintiffs could present evidence regarding an adviser’s services to its other funds and its costs, and perhaps prevail on a Section 36(b) claim.