August 18, 2009
The Emergence of Jones v. Harris
Posted by William Birdthistle

A flurry of publications in the past 48 hours highlights a particularly fascinating corporate law case on the Supreme Court’s upcoming docket: Jones v Harris.

First, Wall Street Journal columnist Jason Zweig published a piece over the weekend which opened by noting that unlike typical high court fare, this case will “hit you right in the pocket.”  Then this morning, New York Times correspondent Adam Liptak emphasized that this case may hit the pockets of fund advisers even harder, characterizing the case as one focused on executive pay.  Finally, the Supreme Court itself today scheduled the oral argument: Monday, November 2, 2009, at 10:00 a.m.  My own take on the case is forthcoming in this law review article.

Both Zweig and Liptak are right – this case is going to cost either you (i.e., the 93 million individual mutual fund shareholders) or the investment advisers who manage mutual funds (e.g., Fidelity, Vanguard, et al.) billions of dollars.  Specifically, the Court will be called upon to give content to the fiduciary duty imposed upon investment advisers by Section 36(b) of the Investment Company Act on the question of mutual fund fees.  If the Court establishes a standard that requires a more robust duty, advisers may have to lower their retail fees.  In an industry with $10 trillion in assets under management, from which advisers take home $100 billion in annual profits, even a modest recalibration could shift billions of dollars between the pockets of advisers and shareholders.

For an overview of this case, the competing opinions of Judges Easterbrook and Posner in the Seventh Circuit below, and the practical and theoretical implications of a Supreme Court ruling, here is a five-part series of posts I wrote when certiorari was granted a few months ago:

  Will the Supreme Court Save our Savings?

  Chief Judge Easterbrook and Classical Law & Economics

  Judge Posner and Behavioral Law & Economics

  Practical Implications of a Supreme Court Ruling in Jones v. Harris

  Theoretical Implications of a Supreme Court Ruling in Jones v. Harris

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