NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
August 6, 2015
Before
FRANK H. EASTERBROOK, Circuit Judge
MICHAEL S. KANNE, Circuit Judge*
No. 07-‐‑1624
JERRY N. JONES, MARY F. JONES,
On Remand from the Su-‐‑
and ARLINE WINERMAN,
preme Court of the United
Plaintiffs-‐‑Appellants,
States.
v.
HARRIS ASSOCIATES L.P.,
Defendant-‐‑Appellee.
Order
Plaintiffs contend that Harris Associates charged excessive fees for advising mutual
funds in the Oakmark complex. The district court rejected this contention, Jones v. Harris
Associates L.P., 2007 U.S. Dist. LEXIS 13352 (N.D. Ill. Feb. 27, 2007), and although we dis-‐‑
agreed with the legal standard the district court had used we nonetheless affirmed.
Jones v. Harris Associates L.P., 527 F.3d 627 (7th Cir. 2008). The Supreme Court in turn
disagreed with our legal standard and remanded for application of the approach that
the Justices adopted: “[T]o face liability under § 36(b) [15 U.S.C. §80a–35(b)], an invest-‐‑
* Circuit Judge Evans, a member of the panel that originally decided this appeal, died after the re-‐‑
mand from the Supreme Court. The case is being decided by a quorum. 28 U.S.C. §46(d).
No. 07-‐‑1624 Page 2
ment adviser must charge a fee that is so disproportionately large that it bears no rea-‐‑
sonable relationship to the services rendered and could not have been the product of
arm’s length bargaining.” Jones v. Harris Associates L.P., 559 U.S. 335, 346 (2010).
After the case returned to this court, the parties filed statements under Circuit Rule
54 (and we allowed a second round of statements, so that each side could address the
other’s position). Plaintiffs’ statement principally contended that Harris’s fees should be
deemed excessive because they were not approved through proper procedures. The
procedural problem, plaintiffs maintained, is that Victor Morgenstern, the CEO of one
of Harris’s partners, was deemed to be among the funds’ disinterested trustees after he
retired. That was improper, plaintiffs contend, because his deferred compensation could
have been curtailed if Harris failed to meet certain revenue targets. This argument was
presented and rejected on the initial appeal, 527 F.3d at 629–30, where we held that the
funds’ decisions were procedurally sound, and plaintiffs omitted the subject from their
petition for certiorari. The only question the Supreme Court remanded to us for deci-‐‑
sion is the one we quoted above. “[A]fter Jones, a process-‐‑based failure alone does not
constitute an independent violation of §36(b). Instead, we have been instructed that
§36(b) ‘is sharply focused on the question of whether the fees themselves were exces-‐‑
sive.’” Gallus v. Ameriprise Financial, Inc., 675 F.3d 1173, 1179 (8th Cir. 2012).
The district court granted summary judgment to Harris after applying a legal stand-‐‑
ard similar to the one eventually adopted by the Supreme Court. The standards are not
identical, because the Supreme Court’s approach does not allow a court to assess the
fairness or reasonableness of advisers’ fees; the goal is to identify the outer bounds of
arm’s length bargaining and not engage in rate regulation. This means that the Supreme
Court’s standard is less favorable to plaintiffs than the one the district court used—yet
plaintiffs lost even under the district court’s approach.
The district court found that there is no material dispute about four propositions,
which collectively require a decision for Harris: first, Harris’s fees were in line with
those charged by advisers for other comparable funds; second, Harris provided accu-‐‑
rate information to the funds’ boards, whose disinterested members approved the fees;
third, the fee schedules reduced the applicable percentage charge as funds’ assets rose
(for example, Harris’s fee for one fund was 1% of assets up to $2 billion but 0.75% of as-‐‑
sets over $5 billion); fourth, the fees could not be called disproportionate in relation to
the value of Harris’s work, as the funds’ returns (net of fees) exceeded the norm for
comparable investment vehicles. 2007 U.S. Dist. LEXIS 13352 at *23.
Plaintiffs do not raise any factual question about any of these points, the first and
fourth of which jointly suffice under the Supreme Court’s standard. The Justices ask
No. 07-‐‑1624 Page 3
whether a fee is so large that it could not have been the result of arm’s length bargain-‐‑
ing. This record shows that Harris’s fee was comparable to that produced by bargaining
at other mutual-‐‑fund complexes, which tells us the bargaining range. If evidence im-‐‑
plied that Harris’s services were worth less than the services that other advisers provide
for other funds, that would imply that arm’s length bargaining would produce a lower
fee. But the undisputed evidence shows that Harris delivered value for money; the
funds it was advising did as well as, if not better than, comparable funds.
As they did in the district court, plaintiffs seek to avoid the implications of these
facts. Instead of comparing the fees Harris received from public mutual funds with the
fees that other similar funds have paid to different advisers (the Supreme Court’s ques-‐‑
tion about arm’s length bargaining), plaintiffs want us to compare the fees that Harris
charged the Oakmark funds with the fees that Harris charged some of its other clients,
such as pension funds. Our initial opinion rejected this contention, 527 F.3d at 634–35,
and the Supreme Court did not disagree with us:
Since the Act requires consideration of all relevant factors, 15 U.S.C. §80a-‐‑
35(b)(2); see also §80a-‐‑15(c), we do not think that there can be any categorical
rule regarding the comparisons of the fees charged different types of clients.
Instead, courts may give such comparisons the weight that they merit in light
of the similarities and differences between the services that the clients in
question require, but courts must be wary of inapt comparisons. As the panel
below noted, there may be significant differences between the services pro-‐‑
vided by an investment adviser to a mutual fund and those it provides to a
pension fund which are attributable to the greater frequency of shareholder
redemptions in a mutual fund, the higher turnover of mutual fund assets, the
more burdensome regulatory and legal obligations, and higher marketing
costs. If the services rendered are sufficiently different that a comparison is
not probative, then courts must reject such a comparison. Even if the services
provided and fees charged to an independent fund are relevant, courts
should be mindful that the Act does not necessarily ensure fee parity between
mutual funds and institutional clients contrary to petitioners’ contentions.
559 U.S. at 349–50 (internal citations and quotations omitted).
Plaintiffs have not proffered evidence that would tend to show that Harris provided
pension funds (and other non-‐‑public clients) with the same sort of services that it pro-‐‑
vided to the Oakmark funds, or that it incurred the same costs when serving different
types of clients. They therefore lack the sort of evidence that might justify a further in-‐‑
quiry under the Supreme Court’s approach. The Supreme Court did not disapprove our
No. 07-‐‑1624 Page 4
analysis of this aspect of plaintiffs’ contentions, so we have no reason to reopen the mat-‐‑
ter on remand.
The district court’s decision has held up well.
We close with an apology to the parties. After the Rule 54 statements were received,
the papers were placed in the wrong stack and forgotten. The court’s internal system for
tracking cases under advisement does not include remands from the Supreme Court, so
the normal process of alerts and ticklers failed. We will see to it that this is fixed. That
may be small comfort to these litigants and their lawyers, but at least some good will
come from the delay.
AFFIRMED